When you select a piece of text and make it larger and a different font, you are applying local formatting or a local style. Say you make the character's name Courier New, 12pt, left indent 2.5", all caps. This is the usual style for character names. Because you apply it to one name, you must apply it to all character names in the script. No problem. However, say that for some reason you want to drop the character names to 10pt. To do that you have to work through the whole document, changing the font size for every instance of a character's name. You should be writing/rewriting dialog not spending your life modifying local styles.
If you have to change local styles, you have to work through your whole script changing each instance of the local style.

Style tags are pieces of information that describe the style of a paragraph (or a selected number of characters). Style tags are independent of the script but each can be attached to a paragraph in the script so that the information in the tag is applied to the paragraph. For example, a tag can call for a paragraph of color red, font size of 14pt, and font Arial. Say you call this tag "Stage Directions." All the paragraphs to which the tag "Stage Directions" is attached will appear with this style. In this case, "Stage Directions" gives:
This paragraph is tagged by a style called Stage Directions.
Because you are consistent, you will tag all stage directions with the tag "Stage Directions." Not unexpectedly, you get a request from the director to use standard format. Crushed, you change the stlye tag to left margin of 3 inches, color black, font size 12pt, normal, and font Courier New and get this instant change to all the paragraphs in the script that are tagged with the "Stage Directions" style tag:
This paragraph is tagged by the modified style called Stage Directions.
In like manner, say you want to market your script in a country where character names flush left is preferred. If you have tagged all the character names with a tag named, say, "Character," all you need do is change the style tag "Character" by making the paragraph alignment = left (or make the left margin = 0) and your script layout changes with one simple operation.
Note that you change the style tag only, not all the individual stage directions or character names in the script. Big time savings.
Styles can have other uses in the area of document translation from one medium to another but the advantage described above is what really matters to the writer.
That's all there is to styles. Different word processors implement styles in different ways. That's where you need to open the user manual and find out how to:
Download style template script.dot
How to attach script.dot to an existing script