We have two main functions for translations, _e() and __(). The first prints the value, and the second assigns the value.
As we are feeding a value to a function, we don’t print or echo (the e in the function) anything, so we use the assignment function __().
What happens is that edit_post_link will receive the translated string for 'Edit'.
As for the function, edit_post_link($link, $before, $after), we could do something like:
edit_post_link( 'Edit this', '<strong>', '</strong>' );
And it would make the edit link with a custom, untranslatable, string in bold. To learn more you can dig in the archives of this site.