The code you've shown is an object
constructor
method (the object is called PageObject in this case). The job of a constructor is to set up a new object when someone says
PageObject po = new PageObject(driver);
Not shown in your picture is the rest of the PageObject class. Somewhere, probably near the top of that class, is a line something like this:
private WebDriver driver;
The constructor is doing two things to prepare the class to be used, but only the second thing is specific to page factory.
1) Set the variable driver (the one declared as 'private Webdriver driver') equal to the driver that was passed to the constructor method as a parameter. This is not being used anywhere else *in the constructor method*, but it does make the driver variable valid for use in other methods in the PageObject class. Specifically, when an object has a variable with the same name as a constructor parameter (like driver), this.driver refers to the variable in the class, and just plain driver refers to the parameter that was passed to the constructor method.
2) Call the PageFactory.initElements method using the passed in driver object.
Hope this helps.