node or fields. For example, a node type view would display one node per row; a user type view would display one user per row.
When you choose fields, you must have entries in the Fields section to produce an output. To set some options for fields, read here.
Some row styles use fields which means you may select from the available fields to display. Others row styles do not - they are able to use the base type and create a display. Usually, row styles that do not use fields produce less efficient (slower) views, so bear this in mind when contemplating the performance of your site.
When you choose node the complete node will display through Drupal's standard node_view() function. You can choose some options.
When styling views, it's important to realize that the unformatted styles will take the majority of styling from more specific templates. In an unformatted style, the row style will provide theming. For instance, in a view that uses fields as its primary data, the views-view-fields.tpl.php will provide the theming.
Mustardseed created a videocast on row theming that can be viewed here.