This specifies the default collation for the database. Every text field that you create in tables in the database will use that collation, unless you specify a different one.
A database always has a default collation. If you don't specify any, the default collation of the SQL Server instance is used.
The name of the collation that you use shows that it uses the Latin1 code page 1, is case insensitive (CI) and accent sensitive (AS). This collation is used in the USA, so it will contain sorting rules that are used in the USA.
The collation decides how text values are compared for equality and likeness, and how they are compared when sorting. The code page is used when storing non-unicode data, e.g. varchar fields.