Something theoretical is concerned with theories and hypotheses — it's not necessarily based on real life or meant to be applied to real life.
Theoretical things are based on theory and ideas, while practical ones are based on practice. Theoretical thinking can be really helpful when you're trying to imagine something or problem-solve, but your theories should always be tested out in the practical world. As philosopher Bertrand Russell said, “The theoretical understanding of the world, which is the aim of philosophy, is not a matter of great practical importance to animals, or to savages, or even to most civilized men.”