In one of my writing workshops, a participant posted: "Remember how I said I was relatively new to this? Well, reading what you said about your editor ... I suddenly don't know what an editor is for. I thought they just made sure all the sentence structure was good and made sure points came across clearly. How does an editor make choices for the progression of a story? Please help me understand."
If you're hiring a freelance editor, then yes, we're talking about an individual who line edits and critiques your work. However, editors at publishing houses are more "big picture" kind of people, and don't really do a lot of the nitty gritty work (that's for the copy editor).
When you sell your book, you have to start thinking of your novel as a group project. Everyone from the editor to the marketing department will have input on some level. It typically works like this (at least for me):
* You submit a proposal to your editor, who will usually respond with feedback. You adjust accordingly and then write the entire book, which you submit to the editor. Even if you sell a complete novel for the first time, there will almost always be revisions. I think of the editor, her assistant, marketing, publicity, and even the freaking copy editor (who usually makes me crazy) as my team. I listen to their concerns and their suggestions. They have experience and knowledge about publishing that I don't, so I usually follow their advice. They want the book to be a success, too, so why would I discount all they have to offer?
* After you submit the finished novel, you will almost always get revisions. Sometimes, your editor will offer a few in-manuscript edits, but usually the feedback is in the form of an email with very specific suggestions about tightening plots, cutting or adding scenes, strengthening characters, and so forth. Then you revise the book. I usually follow my editor's advice, but there are times I choose not to take a suggestion and I always explain why. Sometimes, the editor will ask you to cull through the manuscript a third time, just to make sure everything's as good as possible. (Or even more times, depending on the book, the author, and the production schedule.)
* Once the editor approves the final manuscript, it goes off to production. This is usually the time you'll get marketing's version of your blurb, and you and your editor fix and tweak where necessary. This is also the time that marketing will do a cover art conference and your editor will often ask for your ideas. While all of this is going on, you should be working on the next book due (or the next book to sell). At some point, you'll get the copy edits. A lot of publishers are now sending electronic edits (which is fine with me b/c I was an e-book author first and that's how I learned track changes in Word). You'll spend some time going through the manuscript and approving the fixes (or rejecting them) and answering any queries the CE makes about content. (You make want to drink alcohol through this process.) Then you send the copy edited manuscript back to your editor, who goes through the manuscript and makes the final changes that you approved and/or added/changed yourself. Then it goes back to production.
*After a while, you get the galleys. Galleys are the typeset copies of your manuscript, basically the final layout that goes to the printer. It's your last opportunity to catch errors such as typos or misspelled words. At this point, it's too late to make major changes. (In fact, if you try to change more than 10% of the book, you can be charged typesetting fees because it costs the publisher money to reset the entire work.) You're really just making sure everything's in order and ready to go. BTW, your galleys are what the publisher uses to make your ARCs (Advanced Reading Copies). These are the versions of the books that go out to booksellers and reviewers. Usually the ARCs are issued before any needed changes are made in the galleys, which is why there's always a disclaimer on the ARC about it not being the final version, and that it may have errors, et al.