The .theme file is used by the built in "themes" service in Windows XP.
There are themes in the "Plus!" software for Windows XP, as well as the prepackaged Luna "Blue, Olive, and Silver".
The themes from this site, require the installation of the correct software (in most cases from Stardock) which you can access via the "Software" tab at the top of the page.
For "skinning", or "Applying a theme" to the various parts of your Graphical User Interface (GUI), you can use the following as a general guideline for said software:
WindowBlinds - this program skins the Windows shell (technically refered to as the explorer shell), which comprises the Taskbar, Start Menu, Window frame, toolbars, menus, scrollbars, and progress animations (downloading, saving, copying, etc.).
IconPackager - this program applies a package (theme) of icons, which changes many of the system icons - as well as any file type icons included in the package.
CursorXP - this program applies a set of custom mouse pointers.
DesktopX - this program allows you to run widgets on your desktop, and also allows you to run DesktopX themes - which are combinations of objects combined to make alternative desktops.
ObjectDock - this program allows you to run a dock (or anchor point) on your desktop, which can contain system and folder links, program links, web links, and docklets - all of which can be represented by high quality icons.
There are other programs for designing skins, as well as displaying system information, calendars, etc.
The list above should get you started if interested, and all of them are available in either freeware, or shareware (usually 30 day trials, or limited editions) - so that you can try them out. They come with some default, or prepackaged themes to get you started - and you have a limited amount of free downloads from this site, before being required to purchase a product, subscription, or to contribute to the community here before being allowed additional download access.
Hopefully this answers most of your question. 
