Configuration is a general term that can refer to the arrangement of functional units according to their nature and characteristics. Also, it can refer to software configuration which more suitable for server-related topics.
A configuration file is usually a text file associated with a specific software which describes the initial settings of the software. Some applications provide tools to generate configuration files.
Some computer programs only read their configuration files at startup. Others periodically check the configuration files for changes. Users can instruct some programs to re-read the configuration files and apply the changes to the current process, or indeed to read arbitrary files as a configuration file. There are no definitive standards or strong conventions.