In laymans terms.. What is music theory?

Music theory is the study and explanation of how music is built (chords/harmonically, melodically). It explains why we hear music and expect it to do what it usually does (a dominant chord moving to a tonic chord for example is a sound we expect to happen, and does that due to the notes in the dominant chord have tendencies to move to each note in the tonic chord). It also explains the historical progression of music as to how we went from single musical lines being sung by everyone in the 1500s to the extravagantly huge orchestras of the 1800s, and then to the contemporary musical styles.

It is basically the concepts that separates musical sound from all other types of sound. This includes such elements as timing, pitch, melody, harmony, keys, octaves, chords and composition.

Music theory is everything to do with music. From when and how a composer writes down the note to how the instrumentalist plays it to how the sound is produced to how the acoustics of the room work - all that is music (or possibly sonic) theory.

On a slightly less broad term music theory is how music is written - both figuratively (what chord progessions work for instance) and literally (how to write 'play this note for 4 beats') Music theory is an incredibly in depth and broad spectrum, and it takes many many years to get an in depth understanding of it. However, basic music theory is reasonably easy - but there will always be another layer to challenge you.