TYPO3 can be run in a specific application context by using the environment variable "TYPO3_CONTEXT", which is usually set in your webserver configuration (e.g. in htaccess). Built-in contexts are "Production" (default), "Development" or "Testing". This can be used to provide specific configuration sets for each context.
However, if you don't set a context environment variable, you can still use the install tool to select a configuration preset for "Production" or "Development" context. The goal is to configure a production instance with maximum performance and no debug output that is possibly shown to users, while development instances should enable error output. The configuration preset for "Production" is set by default. As a third alternative, you can enter a custom configuration.