The transforms.conf entry that you've is applied to each event of a sourcetype, source or host.
The REGEX is a regular expression that tries to find a match from the value of SOURCE_KEY (an attribute which has default value as _raw, your raw data). A dot means it'll match everything (the transform will be done for all events).
DEST_KEY - it provides a Splunk field (that are available at the time of parsing) where the transformation will be applied.
FORMAT - it's a value that will be applied to value of DEST_KEY
So basically what it's doing here is, for each event, change the value of index (represented as MetaData:Index in transforms.conf) with value serverapplication, regardless of what it's original value was.