This file specifies the version of the Linux kernel and gcc in use, as well as the version of Red Hat Enterprise Linux installed on the system:

Linux version 2.6.8-1.523 (user@foo.redhat.com) (gcc version 3.4.1 20040714 \  (Red Hat Enterprise Linux 3.4.1-7)) #1 Mon Aug 16 13:27:03 EDT 2004

This information is used for a variety of purposes, including the version data presented when a user logs in.