Wiring up a simple oval is obvious, just connect the wires anywhere you like and it works. But what happens when you have points, sidings, extra loops etc., where do you put the controller? As a layout gets more and more complicated it gets much harder to figure it out. Understanding how the points work is very handy when you're scratching your head because a train moves when you don't want it to, or a train doesn't move when you do want it to.
Points don't just switch the direction that trains go through, they also switch the current. This useful feature allows you to have multiple trains on your layout without having all them going at the same time. Some can be left in sidings or on ajoining loops. Only when the points are set in favour of the train will it move.
Both outer rails of points conduct electricty at all times, it's only the inside rails that are switched. This diagram shows how the direction of the switch and position of the controller affect the layout.
Current is shown in red and blue, it doesn't really matter which is positive and which is negative (just as long as red and blue don't meet!). Where rails are white means no current is reaching that point (or to be more accurate, current is not capable of reaching that point since current will only flow if a train motor completes the circuit.) Where the rails are red one side and blue the other, a train will proceed. If only one side is red or blue, the train won't move.
The left column shows the most common configuration with the controller on the main line before the siding. This is the most useful configuration because a train will can always proceed on the main line and whichever direction the point is set to.
Points can be used to run multiple trains on the same layout with only one controller, see Euro Two Track. This takes advantage of the fact that a train can drive backwards (right to left in the diagrams above) through a point even when the the direction is set against it. This allows current to flow along the branch to another circuit.
Unfortunately, the point must be set with the train on the other circuit otherwise no power will reach it. This means that only one rail is powered by this setup. To power the other rail you need to have the opposite setup elsewhere on the layout, as in the example.
See Controlling Two Trains with One Controller for more information.