I couldn't find the answer on EC2 documentation. What is it for? If I launched an EBS backed instance, the root device for the instance would be an EBS volume. If I install a few tools/software on the instance, will those be installed on the root instance by default? Still I guess the question really came from the little understanding of the root device. Any detailed info on that?
Also if I need to launch another EBS backed instance, and also want to have the same copy of the tools/software installed on the earlier instance, how to do that?
EC2 instances have two types of storage -- ephemeral storage, and EBS based storage -- and each instance is given a specific amount of that disk space by default. Each instance has its own allotment of disk space that it can use which is independent of any other instances disk space that you launch. You can also add an EBS volume to your drive for additional storage, but, those volumes can only be attached to one specific host at a time.
If you had two EBS instances, and you wanted to ensure that they're both using the same tools and software, you'd need to enforce that using a configuration management tool, such as puppet, chef, or cfengine.