A titular bishop is a bishop of the Catholic Church who is not in charge of a diocese (Code of Canon Law, Canon 376). Examples of bishops belonging to this category are coadjutor bishops, auxiliary bishops, bishops emeriti, vicars apostolic, nuncios, superiors of departments in the Roman Curia, and Cardinal Bishops of suburbicarian dioceses (since they are not in charge of the suburbicarian dioceses). Most titular bishops hold the title to a titular see. Assigning titular sees serves two purposes. Since part of being a bishop means being the head of a Church, titular sees serve that purpose for bishops without a diocese. At the same time, the office of titular bishop memorializes ancient Churches, most of which were suppressed because they fell into the hands of non-Christian conquerors. For this reason the former terminology was not "titular bishop" but "bishop in infidel regions" (in partibus infidelium). In recent times the names of titular sees are drawn also in numerous cases from those of former dioceses which were absorbed into other dioceses or expanded and hence moved to larger towns and cities.
Since 1970, there are two more exceptions. Diocesan bishops who resign their see or are transferred to a non-diocesan appointment are no longer habitually transferred to a titular see. Instead, they take the title Bishop Emeritus of the former see. Also, coadjutors are no longer named to titular sees, instead taking the title Coadjutor Bishop of the see they will inherit. In other cases titular bishops still take a titular see.
Here are two examples to illustrate the difference. When Bishop Francis Green http://www.catholic-hierarchy.org/bishop/bgreenf.html was named coadjutor of Tucson, Arizona, in 1960, his official title remained "Titular Bishop of Serra" until he succeeded the Bishop of Tucson later that same year. However, when Bishop Gerald Kicanas http://www.catholic-hierarchy.org/bishop/bkicanas.html became Coadjutor Bishop of Tucson in 2001, he ceased being Titular Bishop of Bela. He still remained a titular bishop until he succeeded the Bishop of Tucson in 2003, but his official title changed from "Titular Bishop of Bela" to "Coadjutor Bishop of Tucson."
Cardinal Bishops of suburbicarian dioceses are also titular bishops, but they hold titles to existing dioceses, namely one or more of the suburbicarian sees, but while they do not govern their see they are obliged to give it their patronage. Angelo Cardinal Sodano is Titular Bishop of Albano http://www.catholic-hierarchy.org/bishop/bsodano.html, while Bishop Marcello Vallini is its actual diocesan bishop http://www.catholic-hierarchy.org/bishop/bsemeraro.html. The Cardinal Dean is by tradition Cardinal Bishop of Ostia, in addition to the suburbicarian see he previously held.
Occasionally, the transfer of a diocesan bishop to a titular see has been used by the Holy See to strip of his responsibilities a bishop whose behavior it disapproved of. For instance, in 1995, Jacques Gaillot, known for his activism on Catholic-sensitive social and political topics (pro-contraception, abortion, etc...), was transferred from the see of Évreux in France to Partenia, a titular see in Algeria.