a real world point of view
Incidental music is that music which cannot be heard by the characters in the narrative. It is used for the benefit of the audience, in order to give emotional context for a scene.
Doctor Who's relationship with incidental music was spotty during the 1960s. Many stories did not in fact have incidental music, so much as a composition of various special sounds. It was really only with the rise of Barry Letts as producer that serials began to consistently have genuine, composed incidental music scores.
During the 1970s, incidental music was — with a few important exceptions — typically composed by Dudley Simpson, and performed with real instruments. Though the budget did not run to full orchestras, Simpson was typically able to at least have a few live instrumentalists, so that the major sections of the orchestra were represented.
The first fully orchestral incidental music in the history of the franchise was found in John Debney's score for the 1996 tele-movie. When Doctor Who returned in 2005, Murray Gold wanted to continue in Debney's tradition. Initially, however, he was only able to get an orchestral session for the Doctor Who theme. True orchestral soundtracks didn't happen until the budget was increased following the success of Series 1. From The Christmas Invasion forward, Doctor Who has enjoyed genuine orchestral incidental music, to the extent that the show's orchestrator, Ben Foster, became almost as well known as composer Murray Gold.
Modern Doctor Who has also occasionally obtained the rights to use pre-existing popular music as part of the score. Songs like "Englishman in New York", "Sunshine", and "Chances" have been used as scene-setters.