In that case, you are instantiating a new class called Game. In essence, the variable game will contain the functions of the Game class. This is the same as when you create a new array or movieclip

var arr:Array = new Array();

or

var mc:MovieClip = new Movieclip();

Of course it is case sensitive so if the class is named Game, then the call would be

var game:Game = new Game();