This command reads your current selection, which should be a function name or an insertion point after a function name, and adds a template with placeholders that allow you to tab through the arguments it can take. For example, if your selection is Plot, you get Plot[f,{x,xmin,xmax}], which shows the simplest form of the Plot function.
You can only get function templates when you are connected to a Mathematica kernel. To define a function template for a user-defined function, make the template the first statement in the usage message for the function. For example, to define the template f[a, b] for the function f, you could use the following command: f::usage="f[a,b] is an example of a function".
The templates you get for built-in functions are usually only one of several possible argument forms. Use the kernel command ? to get more information, or refer to the function's complete description in Help ► Documentation Center.
When you choose Make Template after typing a partial word, Mathematica looks to the left of the insertion point to find a suitable function or variable name. When this name is not a currently defined function, Make Templateapplies Edit ► Complete Selection before attempting to make a template.