The option is used to set the data displayed for the selection and the result.

Let's say you implement the widget on entity A and want to select entity B (with attributes name and street).

Add the name and street as template attributes with the names for the 2 attributes B1 and B2.

The you can set the selected template as a string like this: The name is ${B1} on street ${B2}. Then the selectionlist will come up as: The name is test on street Unionstreet (assuming the name and street have the values test and Unionstreet).

The same applies to the result, this is then the way the result (the object you selected) will be displayed. This is setup in the same way.

I hope this makes it more clear on what to fill in on the template options.