A var always starts at 0x0000. If you have ever programmed, you have used vars. If you have ever done algebra, you have used vars. Vars are variables. They can be anything. In high-level programming, they have names like "place_to_store_stuff" and you can set it to whatever you want. In math, it is almost always X.
Now, a variable is a memory location that you use to store data in. Here, these are two byte data locations accessed by their number, which in this case is 0x4050. So, by doing setvar 0x4050 0x1, you are storing 01 at the location of var 0x4050 for later access. Think of the var number like a book cover on an encyclopedia. Most of the time with encyclopedia volumes, all there is, is a name and a number on the cover. inside is what counts. So here, setvar 0x4050 0x1, is essentially changing the pages of that book.
Understand?