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The license picker is on on the upload form page, which allows users to pick the right license template for the file they're uploading.
It is important that all files uploaded to the wiki have a proper license so that any potential re-users know what they can and can't do with the wiki's content. Whereas articles and other content with text on a wiki is generally required to be licensed under the wiki's main license, this usually isn't the case for files.
It is possible to use files licensed into the public domain on a copyrighted wiki as well as to use use copyrighted files on a wiki that has a copyleft license.
What's the advantage of having the license picker?
It allows users, especially newer ones, to focus on building the wiki as opposed to worrying over copyright issues.
When it's enabled, users can choose the correct license for their media files from the drop-down menu of possible choices.
How do I enable the license picker?
To enable it, create MediaWiki:Licenses with the correct content. You need administrator rights to do this. The format is:
* Header name ** templatename|Human-readable description ** anothertemplate|Yet another human-readable description * Another header ** onemore|And so on...
You can take a look at the Commandos Wiki's upload form and edit their MediaWiki:Licenses page for a working example of the license picker.