nitinumap,
Just to clarify:
ProjectGen is a tool used by you, the software developer to create default VSTA project templates installed and registered along with your application and VSTA msi files. ProjectGen is *not* used by the end users of your application.
You'll want to use projectgen to create a basic VSTA project template or set of templates for the end user of VSTA to select with File | New.. Project. When the project templates you created are installed and registered, they will be displayed in the New Project dialog. These project templates are installed with your application, not ProjectGen.
To register the default templates on the end user machine, your installer will run vsta /hostid <appname> /setup
(this is documented in the SDK)
Also: The VSTA end user also has the ability to create their own project templates from the VSTA IDE (File | Export Template...). But these end-user project templates all originate from projects they created using the default project templates you have installed with the application.
Hope this helps!