Crossword Compiler word lists are collections of words that you can use for word finding, finding anagrams and filling in grids. You can have many different word lists, and use different ones with different crosswords, and easily change between them when you're looking for words.
There are also Theme Lists. These are fairly small collections of themed words that can be used for creating vocabulary puzzles or as a theme when you fill the grid. Word lists are larger collections of words, can be of any size, and also have a score (see below) associated with each word. The Word List topics in the help file refer to these larger word lists.
The program comes supplied with two word lists, but there are many optional ones that you can also use. You can also create your own using the Word List Manager.
Things aren't quite that simple however! Each word in the word list also has an associated score, which Crossword Compiler uses to find good fits when grid filling. You probably don't need to worry too much about the word scores, but you can change them if you like using the Word List Manager (as well as in various other places).
Each word list has an associated letter mapping and punctuation setting that defines which characters are equivalent (for example, usually lower case letters appear as upper case), and which are removed before using in the grid. There is also an associated character set, which allows you to restrict a list to characters used in a particular language.
Word lists are stored as files of the LST file type. However, you should never need to deal with the word list files directly unless you wish to copy the file (for instance for a backup).