Note: Forms are made to look how they are at two layers, the Forms API and the theme layer.

[Words below are mostly Everett's verbatim]

Drupal 7 provides a #title_display property that can be used with any form element that supports the #title property. The #title_display property tells the form system how to render #title

before
(default) #title is rendered as a label element before the form element in the page markup.
after
(default value for radio and checkbox form element types.)
#title is rendered as a label element after the form element in the page markup.
invisible
#title is rendered as a label element before the form element in the page markup, and is made invisible with the Drupal 7 .element-invisible CSS class. This makes #title remain available to screen-reader users, but hides it from being displayed visually in the browser.

Tip We should never unset a title. Per accessibility standards, every form element requires "text by which software can identify a component within Web content to the user" (http://www.w3.org/TR/2008/REC-WCAG20-20081211/#namedef).

There is one more possible setting for #title_display that works only for radio and checkbox elements.

attribute
#title is rendered as the title attribute of the form element

Read more about this property and its role in accessibility at Everett Zufelt's blog post, http://zufelt.ca/blog/drupal-7-form-api-accessibility-titledisplay