Pls help me understand this code

I just start learning Node.js, and I have problem understanding the following code:

var fs = require('fs');

var http = require('http');

var url = require('url');

var mysql = require('mysql');

var db = mysql.createConnection({});

db.connect();

var template = function(vars, callback) {

fs.readFile('./base.html', { flag: 'rw' }, function(err, data) {

    c = 0;

    Object.keys(vars).forEach(function(k){

        data.replace('{{'+k+'}}', vars[k]);

        if(++c === vars.length) callback(data);

    })

});

}

http.createServer(function (req, res) {

 res.writeHead(200, {'Content-Type': 'text/html'});

 var params = url.parse(req.url, true).query;

 if (req.url === '/') {

    fs.readFile('./index.html', function(err, data){ 

        template({ content: data }, function(html){

            res.end(html);

        });

    });

}

}).listen(80);

I know this code is replacing something in index.html with data in base.html, but I don't know how {content:data} works here? And why in html file there are "{{" and "}}"? And what is {flag : 'rw'}? Is this read and write authorization? I appreciate if someone can explain to me in detail.