A paper space layout is a representation of a drawing sheet. Although the model geometry—the real stuff—goes in model space, the “not-real” drawing objects (for example, a drawing border, title block, general notes, perhaps view labels, and symbols like North arrows) all go in paper space on the layout. In essence, model space is like the world, infinitely large and three-dimensional; paper space is finite—the size of a drawing sheet, in fact—and two-dimensional, just like a drawing sheet.
Aside from just an arrangement of your drawing sheet, layouts also store plot information. AutoCAD saves separate plot settings with each layout as well as model space so that you can plot each one differently. In practice, you'll probably need to use only one of the paper space layout tabs, especially when you're getting started with AutoCAD.
Rather than just reading about it, you may also want to open a few of the AutoCAD 2012 sample drawings and click the Model and Layout buttons or tabs to witness the variety of ways in which paper space is used.
The AutoCAD and AutoCAD LT sample drawings are no longer installed with the program, but they're still available—online. Download them from www.autodesk.com/autocad-samples or www.autodesk.com/autocadlt-samples. The upside of the change is that users of either program now have access to the other's sample files. ...