If you are using Salesforce.com with Enterprise, Unlimited and Developer edition, Record Type is a powerful feature. We can define business processes, picklist values, and page layouts to different users based on their profiles. So, even for the same object, user can have different page layout with different fields, different picklist value and etc.
But, sometimes admin overkill of Record Type usage. Not all condition need to use record type, may be a custom picklist field is enough. Please note that record type is different with a normal custom field and you cannot just edit record type like normal picklist field.
So, when do you need to setup record type?
1. Different Page Layout
Same user need to see different page layout based on a type. User will see different field position, required fields, buttons, related list for the same records.
2. Different Picklist Value
Configure available values in picklist field depends on the record type.
3. Assign record type only for certain profiles
We can set available record type and default record type for each profile.
This is some scenario you do not need to setup record type actually
1. Use as Type picklist
This is very bad, do you notice once you have record type, when user create new record, they have to select a record type before come to the main screen, so please plan ahead correctly.
2. Page layout usage
Not always need to have record type to differentiate user not see some fields in page layout. Admin can adjust using field level security, so some profiles will NEVER see that field, in page layout, report, etc.
Once you have more record type, it is more effort need to maintain, so if possible use less record type.
Here link to record type cheat sheet from Salesforce.com