Code:
var lastDown:MovieClip = null;
That line does two things. First, it declares the lastDown variable as a MovieClip. Then, it initializes that variable to null. Strictly speaking, initializing it is not necessary as the default value for an Object type variable is null, and there's no way the code will reference it before it's properly set anyway. I just like to be explicit.

The lastDown variable is intended to hold a reference to the last movieclip which was touched, as long as it is being held down. Setting it to null means that there is no such movieclip, meaning nothing is being held down. In the press1 function, we set it to the clip which was touched. It should remain with that value until either the timer fires, or the mouse is lifted. If the timer fires, then the user held down for the duration of the timer. If the mouse is lifted, then we reset lastDown and the timer to be ready to try again.