A trailer fly is a fly that you drift behind or under the fly closest to your Rod.
There are so many variations on the way to do this that you could likely write a book on it, but here is the way I usually use trailers:
For trout, I either use a trailer in a hopper dropper setup, or in a double dropper rig.
The Hopper Dropper utilizes a largish, buoyant fly closest to your rod; think: foam grasshopper, or large over-hackled caddis-stimulator. The trailer fly in this setup is a size 14 or smaller nymph tied 18-36 (to whatever depth you need to get to the fish) inches under the hopper. It gives you the benefit of the fish that want to take a surface bug, and the fish who is layin' low.
The Double dropper rig utilizes a strike-indicator (corkie is the preferred terminology around here, but most civilized folks use thingamabobbers. I have used both, and can tell you that a thingamabobber is one of the best inventions in fishing ever). You tie your first nymph under the indicator however deep you need it to be in the bottom 18" of water, and then you tie the trailer fly (usually smaller (size 16-22) rarely larger) an additional 18-24" under that. here you are maximizing the fish that will bite based on their appetite, or general inclination toward a specific hatch or size buggie.
For Steelehead, the issue becomes significantly more complicated, but most often I see folks using a trailer fly as their main fish catching device. They tie their egg colored fly (or foam egg, or san juan worm) behind a large heavy fly whose main purpose is to get the rig low. Some folks will tie whatever on as the front fly in this setup, but I have found that heavily weighted peacock colored stoneflies, in a size 4-6, murder fish, even when fish are supposed to be targeting the upper egg colored fly.
Additionally people use trailer flies when swinging for steel, but I have never had any luck with this method, so I a probably do it wrong.
For the record, the fly you tied up there looks to me like it would work swung by itself, or as the egg colored fly in the first Steelhead rig I described above.
Great work: tying flies is one of the coolest things a man can do, IMO.