The exten keyword is used to define the extension. On the right side of the exten line, the 1234 means that we are defining the rules for when someone calls 1234. The next 1 means this is the first step that is taken when that number is dialed. Finally, Answer instructs the system to answer the call. The next two lines that begin with the same keyword are rules for the last extension that was specified, which in this case is 1234. The n is short for saying that this is the next step to take. The last item on those lines specifies what action to take.
Here is another example of using the Asterisk dialplan. In this case, an incoming call is answered. The caller is played a beep, and then up to 4 digits are read from the caller and stored into the DIGITS variable. Then, the digits are read back to the caller. Finally, the call is ended.