Another choice -- probably the most complex one in the simple systems we're discussing -- is that of speaker setup. A 5.1 system includes five speakers to create surround sound (plus a subwoofer for the bass channel), while a 7.2 system uses seven smaller speakers and two subwoofers, and so forth.
The signal itself doesn't care how many speakers you have -- the receiver will just combine signals, if necessary, to match your system's output -- so the choice of speakers is up to you. Think about the size and shape of the room that houses your home theater -- as well as your budget -- and let those factors dictate the the sound setup you'll be creating.
For example, a five-speaker (5.1) setup includes one central front speaker (think of this as the regular channel, or what would be coming out of your TV), as well as two front and two rear speakers (left and right for each). A seven-speaker (7.2) setup further divides the channels, sending audio at you from even more directions. The newest systems can use a "sound bar" speaker that replaces several of the front-facing speakers to handle a wider variety of sound sources, but may narrow the total output.
A small den or living room, however, doesn't need that much surround-sound, and more than likely you'll end up combining the speakers' locations due to limited space. Larger spaces, on the other hand, might actually require the larger number of speakers so that you don't end up with dead spaces in your soundscape.