This tool lets you create solid or outlined ellipses.
In the settings panel to the right, you can set it to fill to create a solid shape filled with color.
Setting the type to stroke instead will create an outline of the shape with your selected color.
You can increase the thickness of this outline by increasing the stroke width value.
Decreasing the opacity will make your shape or outline more transparent.
Holding shift while dragging your shape will make it a perfect circle. Holding Alt while you drag will center your shape around your starting point.