Please see the online documentation for Territory Hierarchies at the following link:
Territory Management enables you to structure and organize your sales market by dividing it into territories according to criteria of your choice. These territories are structured in a territory hierarchy. the first step for TM would to maintain the heirarchy levels as per the requirement of your organization Territory heirarchy levels can be maintained in SPRO
>CRM>Master Data >Territory Management>Define Territory Hierarchy Level
Once you are done with defining hierarchy levels you can use the tcode CRMM_TERRMAN for replicating the market view of your organization into the CRM system by using terrirtory management.
Furthermore, you will need to assign the territory id in org model to position in the Area Tab, along with org model territory management will use product as well.
This is done to find out
1. which bp belong to a particular territory
2. which products are available in a particular terrritory
3. which employees are responsible for a territory
hope this helps & clears the basic idea for TM