No default engine was specified and no extension was provided

I get the following error No default engine was specified and no extension was provided on trying to render template like the following:

app.get('/', function (req, res, next) {
    return res.render('index');
});

In my server.js config I've added the following lines:

app.engine('jade', require('jade').__express);
app.set('views', __dirname + '/views');

What's my problem?

EDIT: and what is app.engine('jade', require('jade').__express); mean and what cases should I use it?