This means that a variable with this name is used, for example:
<sc.variable name="mediaFolder" value="/upload" />
At the beginning of the Sitecore.config file, you can find several variables:
<sc.variable name="dataFolder" value="/data" />
<sc.variable name="mediaFolder" value="/upload" />
<sc.variable name="tempFolder" value="/temp" />
You can use them later in configuration files as follows:
<DumpFile>$(dataFolder)/diagnostics/counters.{date}.{time}.{processid}.txt</DumpFile>
<setting name="MediaFolder" value="$(mediaFolder)" />
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