The outline provides the skeleton for an individual chapter or the whole report, sort of like a table of contents but with some additional notes/details. The outline shows:
The idea is to create the outline first, before writing, and add/subtract/arrange/re-arrange until the flow is right and the content is complete. And only then starting to write.
The outline should not have paragraphs and not even full sentences, but bulleted lists (numbered as appropriate). This makes it easier to scan for content and flow and re-arrange.
Also include notes, where appropriate, indicating what is in a section. e.g., "Include tutorial code here" or "Graph of performance versus time" here for any figures.
For level of detail, the outline should include major sections, sub-sections, and sub-sub sections. It can even include paragraph topics (e.g., for the Introduction). The idea is to have enough details on the content so that no matter which teammate does the first draft of a section, they will have the same material at the same level of detail. Writing style/form could differ, but content would be consistent across first authors.
Note: Often, the penultimate chapter (e.g., "Evaluation" or "Results") cannot be completely outlined when a full report outline is created (e.g., about 2/3 of the way through a project) since the exact form of the final results may not be known. But placeholders can be put in for the likely sub-sections.
Tip: Think of pictures/diagrams that will help explain your work, such as system architectures, process flow, major components. Use a note, such as "Include methodology diagram here" in the outline.
See also: the General Writing one pager