Featured items are displayed when a customer clicks "Featured Products" or along the side of your page, if a feature column is set within your template.
You may also have Show Featured Products on your home/index Page

When you add products to your store, you can choose Featured - Yes or No from within the E-Store, Products Add/Edit
From the Advanced Settings
Select the item you wish to choose for the default item from the drop down box. When adding items, this item will be used if you decide to use the default value.