What's the purpose of this block on apache virtualhost?

/ means the root directory.

Read about Directive:

If multiple (non-regular expression) sections match the directory (or one of its parents) containing a document, then the directives are applied in the order of shortest match first, interspersed with the directives from the .htaccess files. For example, with

<Directory "/">
  AllowOverride None
</Directory>

<Directory "/home">
  AllowOverride FileInfo
</Directory>

for access to the document /home/web/dir/doc.html the steps are:

• Apply directive AllowOverride None (disabling .htaccess files).
• Apply directive AllowOverride FileInfo (for directory /home).
• Apply any FileInfo directives in /home/.htaccess, /home/web/.htaccess and /home/web/dir/.htaccess in that order.