Are you following the "Building a Map Book with ArcGIS" help guide? I think that is how I first learned the process.
To create the reference grids, you should start with the "Grid Index Features" tool under Cartography Tools > Data Driven Pages.
I have never seen it ask for a template before. It should just ask where to store your output FC, and allow you to select features to base the grids on, set a scale, etc.
