Setting up a directory structure
To make the most basic template, create a new folder in the "templates" folder. Name this folder after your template i.e. "mynewtemplate".
Using a text editor (or dedicated editor such as Adobe Dreamweaver) create the files "index.php", "templateDetails.xml"
To keep things organised, make 2 new folders called "images" and "css". Insided the "css" folder create a file called "style.css"
This is the most basic practical setup. Theoretically, the css could be missed out but if you place the styling information within your "index.php" it will bloat the size of webpages and give a poor user experience.
Outline of folder and file structure: