The sort is on line numbers, as aozgaa said. Again, the paradigm here - and this is designed for a different time - is that your data most definitely does not fit in RAM, so you use sort(1) to sort on disk and run your software using only constant memory. (In modern software, databases can and do sort on disk, but few programs do.)

In detail, for input "foo bar FOO qux FOO foo", we convert to

[1 foo, 2 bar, 3 foo, 4 qux, 5 foo, 6 foo]

(with newlines instead of commas, obviously), then sort by word (then line number) to

[2 bar, 1 foo, 3 foo, 5 foo, 6 foo, 4 qux]

at which point the uniq invocation gives <count> <first_line> <word>, i.e.

[1 2 bar, 4 1 foo, 1 4 qux]

albeit with an ugly mix of tabs and spaces. One final sort by <first_line> gives us

[4 1 foo, 1 2 bar, 1 4 qux]

and then it's just a matter of formatting the output:

[foo 4, bar 1, qux 1]

The generally-useful point is that the classic shell utilities really do work pretty well if you're operating within their paradigm, which isn't "throw everything in a hash table". (That's the paradigm of later scripting languages.)