First line will create custom extensions and assign them to PHP processor - as you can see, you can make custom endings for your web site files easily for instance, you can make www.freelance-help.com/freelance.faq which will act the same as www.freelance-help.com/freelance-faq.php because extension .faq can be easily added to the list of extensions PHP will parse...
Second line means that files ending with .phps and .source wont be executed, instead, their complete source will appear in browser [rarely used, but you may need it]
Third line tells what will be the first file executed in browser, if visitor access root folder - for instance, if I go to www.freelance-help.com apache will try to access www.freelance-help.com/index.php first, then, if index.php not found, www.freelance-help.com/index.html etc. If none found it will report an error (interesting rule because you can make custom "index" pages - naming them completly different and non-standard.
for instance, you can make www.freelance-help.com/freelance.faq which will act the same as www.freelance-help.com/freelance-faq.php because extension .faq can be easily added to the list of extensions PHP will parse...