What do Order Types do?
On their own, nothing—they're used to trigger Rules and Notifications. Down the road, they'll cause differences in batching and picking.
If you assign an Order Type, you can pick up on it via Rules, and search for groups of Orders by Type. You could, for example, set up a rule which assigns a specific Template to all Dropship Orders.
Setting Order Type
All orders are Direct to Consumer by default. You can override this with the Options tab when manually creating an Order.
Order Type option when you "Create an Order"
Use a Rule Action, Bulk Action, or individual Order Action to "Set Order Type" any time before orders are Batched.
It's possible to subscribe to different Notifications depending on the Order Type. You could therefore be notified when Wholesale orders are packed.
Navigate to Notifications in the upper-right customer menu to create a new Notification.