Do the excersise below and you'll get a good feel of how the variables work.
Go to the template manager in the admin control panel. Then click on 'Default Directory Template Plug-in'. Copy and paste the HTML code of the 'Directory Template - HTML Template Plug In' into your web editor.You may also open defdir.html with your web editor if you don't want to copy and paste the HTML code from the template manager.
For a good excersize it might be a good idea to place the %%pagetitle%% word somewhere on the page/template. This is just for example purposes. You may place %%pagetitle%% at the bottom of the page or anywhere you choose.
Now that you have placed %%pagetitle%% somewhere on the page/template, copy and paste the HTML source code back into the template manager and click the save button. If you opened defdir.html with your web editor, just save defdir.html
Go to the directory manager and click on any of the 'preview' links present. (If you don't have directories, then create a few) You will see that the word %%pagetitle%% is replaced by the title of the page.