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When choosing targets within 6" of the original template does this:
A) Mean that the template has to hit as many models within the original unit as possible and then if there are other units within the template then that unit suffers a template of its own.
B) Can the template cause damage to other units if they are within its circle

Edit: do I also have to centre my template over the unit incorporating the most models possible. Or can I incorporate the most models as possible on the edges of the template so that I can hit another unit.

Off the top of my head as haven't got my books at hand:

Determin your target. Units within 6" radius might be hit on a 6 (take the test for each units). If they are hit, then follow the normal explosion procedure, placing the template where you can hit the most enemies from the unit.

In any case if for whatever reason models from another unit that's not been properly hit as you failed on your roll of 6, ends up under the template, they'll be hit as normal.

Long story short: rocket launchers are actually mostly a barrage weapon that hits units in a radius.