It identifies what type of train it is, and where its going in a short hand form.
Signallers use them for train regulation (decided which train goes when).
The 4 letters and numbers we see are part of a much larger code.
The first number is the type of train it is. The incorrect but quick and fairly accurate definitions are:
1: Express Passenger, Express Mail, Locomotive going to rescue failed train
2: Regular Passenger (all stations, some semi fasts and the like)
3: Formerly Express Parcels, now used for ECS train regulation, fast ECS trains are class 3.
4: 75 mph freight
5: Empty Coaching Stock (ECS)
6: 60 mph freight
7: 45 mph freight
8: 25 mph freight
9: Eurostars, some Virgin Voyagers
0: light engine movement or convoy.
The letter describes where the train is going for inter regional trains (old BR Regions), the letter corresponds to the destination region.
For example, trains to the Southern Region are xOxx. Trains to the Scottish Region are xSxx. Trains to the Eastern Region are xExx. Trains to the London Midland Region are xMxx. Trains to the Western Region are I can't quite remember!
Within regions, different letters mean different locations and are used fairly random to the normal viewer, eg within the London Midland Region, 2Gxx in the Birmingham area is a Shrewsbury to Birmingham New Street slow service.
The final two digits are the number of the train to go in to that headcode type in the day. For example the 3rd Virgin Voyager to Bournemouth of the day would logically be 1O03, the 3rd Virgin Trains service to London Euston from Manchester would be 1A03 and so on.