First, I am not a lawyer and this is not legal advice. It is general information. If you have a specific question, you should address it to a lawyer who works in entertainment law.
If you have a completed script which a producer/director would like to make into a movie, they option it from you. An option is basically a down payment made from the production company to the screenwriter contingent on their ability to make the movie. While the amount can vary (typically $5000 for a feature), it guarantees the company the exclusive right to purchase the script to make a movie within a set period of time (usually 2 years). It may also allow them to request revisions. At the end of the time period, if they have not made the movie, they may have the right to renew the option and pay you again for that privilege. Or they may walk away. In both cases, you get to keep the money. Many screenwriters make money from options. If the movie is made, the company will purchase the rights from you (usually 10% of budget minus the first option fee). Now you transfer most of your copyright control to the production company. If after the two years, they need additional time, a second option fee would be in addition and not subtracted out of that purchase price. This is the typical way that it is handled, but it can vary depending on the contract, so be sure to read it carefully and have a lawyer review it if you have concerns before signing.
During the option period, you may not submit the script to anyone else as part of the agreement. You own the copyright on the script. An option allows the company to take the script out to potential backers, prepare a budget/breakdown and approach actors. Usually an option renewal is allowed once but after that it is not automatic. If you have someone who may be interested, you can opt not to extend the option unless required by your contract.
An option is different from work for hire. In that case, you are on the company payroll. You may not be entitled to credit as author nor have any stake in the movie's profits. You DO NOT own the copyright (it belongs to your employer). In that case, you would have to purchase the rights to the script you wrote from the company.
Hopefully that helps answer part of your question about what the purpose of an option is and how it generally works. Again, you should consult a lawyer before signing a contract if you have questions.
