With the TEMPLATE object, TYPO3 offers a way to replace markers in an HTML template with content generated by TYPO3.
One marker is called a mark. Two markers with the same name (like and above) are called a subpart. When TYPO3 finds marks or subparts in the HTML template, it will replace them - and in case of subparts everything between them - with what you defined in the TypoScript template for the according mark or subpart. In this example, the subpart MENU will be replaced by the rendering of lib.textmenu.
An alternative to this solution could be the extension automaketemplate, with which it is possible to abandon markers completely. Instead, it uses IDs as references, and thus allows better cooperation with the template designer.
Another alternative would be the extension templavoila. This extension provides a visual user interface. This is not recommended for beginners, though.