Clothing as a concept is very simple- you wear it so you aren't nekkid. The clothes system on Disc is very realistic- you can wear clothes, remove them, damage and mend them, layer them, and so on. Clothing comes in many colours, styles and thicknesses.
The simplest way to adjust your body Temperature on Discworld is to change the amount or type of clothing you're wearing (though colour does not seem to affect temperature in game). Lightweight linen clothing, for example, is better suited to a hot desert region than a thick wooly cloak.
Some clothing, such as the padded monk's robe and certain types of leather garments, also function as Armour.