The Theater is the area where Joel/Mike and the Bots are forced to watch movies located in the Satellite of Love (and thus the setting seen the most throughout the series). A series of doors led to the theater from the bridge, (although there appear to be many other ways to get into the theater), there are also air vent that stops Tom Servo from being able to hover in, thus requiring Joel/Mike to carry him to his seat (although he was able to get in himself on some occasions).
The Theater is usually assumed by fans to be located at the back of the SOL in the sense that the bridge is located up front (as seen in the Season 8-9 opening) while the series of doors are located around the central part of the SOL which thus leads to the back, but as the general size, length and the amount of sections/rooms of the SOL is of great uncertainty/inconsistency, this leaves the proper location of The Theater unknown (plus the theater's size is alot bigger in contrast to the smaller bridge).
When the movie sign is on, the Mads cut off the oxygen supply throughout the SOL aside from The Theater which thus forces Joel/Mike in, or an electric shock is also another method to bring the captives in after going through several doors.
Behind the Scenes
The Theater scenes were filmed in the same area as the bridge. A white sheet was placed in front of the bridge counter to hide it. Joel would sit in front of a cardboard cutout of a row of theater seats, and the Bots and the puppeteers would sit behind them and control the robots. The actors would watch the movie on screens beneath their feet, and the movie would then be edited onto the white sheet after filming.