Google, releases almost every year (or even sooner than a year), a new Android version in order to update the mobile operating system, so that it contains new features and possibilities and of course to fix things that might not work in the right way.
So, each version of Android has it's own SDK (software development kit), so that we can use to build apps that can run on and include all the latest features Android has added in its latest versions.
This means that it is essential that we keep up updating our applications with the latest features all the time, and it possible, without losing the consistency of the previous Android versions.
As part of the Setup Wizard you will already have the latest SDK available to you, however it's useful to know how to install additional SDK's if you need to work with the older devices that do not run the latest version of Android.
SDK's allow you to create AVD's (Android Virtual Device) to test your apps on, customized to your personal configuration.
If you have any doubt, let me know...