Basically this code has two threads created in two classes, and they are called from the third class. Each thread has a loop, and it sleeps after each iteration.
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Well, this is a common misconception, that java programs are single threaded by nature, because they are not. When you start a java program it's being executed inside a Java Virtual Machine, which starts several other threads to execute your code. Check this nice blog:
http://blog.jamesdbloom.com/JVMInternals.html#jvm_system_threads
In your case you most important is, that you start a main thread, which executes a main method. From there you start two separate threads Thread1 and Thread2, which are being scheduled to be executed, but you don't know when they will be picked up by the OS scheduler to be actually executed. It's not deterministic for many reasons:
Java concurrency is a hard topic and the blog entry that I've sent you is a good place to start, go with it. For serious reading go here http://www.amazon.com/Java-Concurrency-Practice-Brian-Goetz/dp/0321349601.
Good luck.