That program is used to tell the level editor what a new sprite should look like when you first add it to a map.

For example, if you open the RPG Maker's folder and then look inside of this folder:
[color=blue]sprites/rpgSprite/[/color]
You will see a file named "defaultSprite.xml"
The DefaultSprite.exe program is used to generate that file.
Each sprite that you're able to place using the editor has its own default appearance.
If you actually open that XML file in a text editor, you'd see that it contains the settings for displaying one sprite image. It specifies a charset (the actual image to use), as well as how many animation frames and directions it has.

When you use the RPG Maker and place a new rpgSprite in your map, the editor will load that XML file to find out what that new sprite should look like. In this case "rpgSprite" will look like a pink square, with 1 frame of animation, and 1 direction.
If you want new rpgSprites to start off looking like a person instead of a pink square, you could use "DefaultSprite.exe" to choose the character that you want to use as the default, and then overwrite defaultSprite.xml in the [color=blue]sprites/rpgSprite/[/color] folder.