This equation is very similar to the one used to define a circle, and much of the discussion is omitted here to avoid duplication. See Parametric equation of a circle as an introduction to this topic.
The only difference between the circle and the ellipse is that in a circle there is one radius, but an ellipse has two:
If the ellipse is centered on the origin (0,0) the equations are
Note that the equations on this page are true only for ellipses that are aligned with the coordinate plane, that is, where the major and minor axes are parallel to the coordinate system.
In the applet above, drag one of the four orange dots around the ellipse to resize it, and note how the equations change to match.
Just as with the circle equations, we add offsets to the x and y terms to translate (or "move") the ellipse to the correct location. So the full form of the equations are
In the applet above, drag the orange dot at the center to move the ellipse, and note how the equations change to match. Also, adjust the ellipse so that a and b are the same length, and convince yourself that in this case, these are the same equations as for a circle.
In the applet above, drag the right orange dot left until the two radii are the same. This is a circle, and the equations for it look just like the parametric equations for a circle. This demonstrates that a circle is just a special case of an ellipse.
The parameter t can be a little confusing with ellipses. For any value of t, there will be a corresponding point on the ellipse. But t is not the angle subtended by that point at the center. To see why this is so, consider an ellipse as a circle that has been stretched or squashed along each axis. In the figure below we start with a circle, and for simplicity give it a radius of one (a "unit circle").
The angle t defines a point on the circle which has the coordinates
So as you can see, the angle t is not the same as the angle that the point on the ellipse subtends at the center.
However, when you graph the ellipse using the parametric equations, simply allow t to range from 0 to 2π radians to find the (x, y) coordinates for each value of t.
Using the Pythagorean Theorem to find the points on the ellipse, we get the more common form of the equation. For more see General equation of an ellipse
This form of defining an ellipse is very useful in computer algorithms that draw circles and ellipses. In fact, all the circles and ellipses in the applets on this site are drawn using this equation form. For more on this see An Algorithm for Drawing Circles.
In many textbooks, the two radii are specified as being the semi-major and semi-minor axes. Recall that these are the longest and shortest radii of the ellipse respectively. The trouble with this is that if the ellipse is tall and narrow, they have to be reversed, so you wind up with two forms of the equations, one for tall thin ellipses and another for short wide ones.
Regardless of what you call these radii, remember that the x equation must use the radius along the x-axis, and the y equation must use the radius along the y-axis: