It sets the Window title to the value of MSYSTEM
variable. As far as the
space, it looks like you messed up the final newline, notice carefully
export PS1='\[\033]0;$MSYSTEM:\w\007
\033[32m\]\u@\h \[\033[33m\w\033[0m\]
$ '
in the variable above each start of a new line insert a literal newline
character into the PS1
.