Albums are folders or groups of photos within a gallery.
You can have as many albums in a gallery as you would like, and you can create albums up to 4 levels deep. Each album can have an individual password if you'd like (you'll set this by clicking the "Actions" button in that album's view), though all other settings (shopping cart, gallery theme, etc) are determined at the gallery level.
Albums are a great way to organize photos for gallery visitors. For example, if the "Smith Wedding" is your gallery, you might have albums for "Ceremony", "Reception," and so on:
Gallery - Jake & Michelle's Wedding
Album - Getting Ready
Album - Ceremony
Album - Reception
Album - Family Shots
Sub-Album - Bride's Family
Sub-Album - Groom's Family
Albums can be incredibly helpful for school or sports photographers.They allow your clients to checkout from multiple areas (say, for parents who have more than one child at a school or more than one sports gallery to look at), since each gallery has its own checkout process; using Albums helps these visitors view multiple photos in different areas of the gallery, but be able to checkout all at once. For a sporting event, a photographer might set up albums for each team, game, and/or day of tournament.
Gallery - Brookstone School
Album - Intermediate Grades
Sub-Album - 4th Grade
Sub-Album - Mrs. Smith's Class
Sub-Album - Jane Jones
Learn about how to organize your photos into albums and how to rearrange albums here: Using Albums