what does (hit) mean?

The actual word 'hit' doesn't necessarily mean anything -- It's a parameter. It's not too different from a variable.

Some functions have built in parameters, and some don't. With non-built in ones, you can even make up your own and call them with an argument (basically a parameter, but it's used in the actual call to the function).

For example:

script.Parent.Touched(connect(function(hit) -- Hit could be anything. Part, object, bob, whatever. The touched function has a built-in parameter, being the object that touched the part.
    print(hit.Parent) -- You can use the parameter within the function, but not outside of it unless you set a variable to the value.
end)

As I previously mentioned, you could make your own functions with parameters:

function add(a, b)
    return a + b -- This would return the parameter a, added to the parameter b.
end

print(tostring(add(7,3))) -- I used the arguments 7 and 3, this would print 10.

Hope this helped!