Well, first you're getting 'v1':(Varying register 1) from the vertex shader: By setting it from one of your (Vertex attributes) 'vaX', usually: mov vX, vaX
or other operations.
What a varying register does (ie 'v1') is interpolate the values of uv (ie 'vaX') for the three vertices which make up the triangle.
Note:Varying registers are the only way you can communicate between vertex and fragment shaders.
For each pixel, the 'tex' function will sample an area 'v1' (rasterise) from the texture sampler 'fs0' with the rules between the brackets (ie <2d,repeat,nomip>).
Think of the first line as ft0 = fs0.getPixel(v1)
, with v1 running from say va1(1)[x, y, z, w] to va1(2)[x, y, z, w] (z can be used for lighting and other effects), you are then outputting this one pixel/fragment to 'oc' (Output color).
Fragment shader are also called Pixel shaders -> get called once for every pixel.
On the other hand Pixel Shaders are called once for every vertex.
There is a third type of shaders called Geometry shaders, but aren't available in Stage3D/AGAL.