You have pretty much hit the nail on the head and answered your own questions
You use metal templates and cut the slits with a craft knife, then fold the cuts you have to create pretty folded designs.
Here are a few links you might like to check out:
http://www.craftideas.info/html/incere.html http://www.imacrs.com/foldem-temps.htm
Apparently Lace templates have been discontinued from the manufacturer, so if you want templates then buy them now because once the shops / websites sell out they will not be able to buy any more.
Hope this helps!