The world generator is based on noise maps (here's an overview) that have values between 0 and 1, there are several maps defined in "wg_noisemaps" in BaseMod.zip. (you can add new ones too). "noise_mapping" maps the values of noise maps to a biome, when the world is generating biomes are picked based on their noise mappings. The biome closest to all of it's "ideal_value"s is chosen.
desert, for example has:
<noise_mapping id="height" ideal_value="0.6" /> <noise_mapping id="rain" ideal_value="0.0" />
That means that an area that's fairly high in elevation and low in rainfall will tend to be desert.
For comparison, grassland has:
<noise_mapping id="height" ideal_value="0.6"/> <noise_mapping id="rain" ideal_value="0.4"/>
Both of these biomes have the same value for height, but different values for rain. If the "rain" noise map has a value of 0.1 in the area, then "desert" will be a better match, and will be picked. If the "rain" noise map has a value of "0.3" in the area, then "grassland" will be a closer match.
The noise mapping you pasted, uses the "oretype" noise map. That noise map controls what type of ore-type resources appear in the ground. This tends to make some areas rich in limestone, and others rich in copper.
Does that all make sense?