It doesn't do a sort - it does a copy since your example shows the file1 records followed by the file2 records with no sorting involved.
Are you asking what the control statements do? If not, then please be more clear about what you want to know.
By the way, if you're not familiar with DFSORT and DFSORT's ICETOOL, I'd suggest reading through "z/OS DFSORT: Getting Started". It's an excellent tutorial, with lots of examples, that will show you how to use DFSORT, DFSORT's ICETOOL and DFSORT Symbols. You can access it online, along with all of the other DFSORT books, from:
Are you talking about the second count in the trailer record?
What is it? I assumed the first count was the number of records in the output file. What is the second count? Is it related to the number of records in the file in some way, or is it just the total of the original second counts in the two input trailer records?