As a shell script, anything starting with `#`, `true<WS>` and `false<WS>` are meant to be ignored and variable declarations are compatible with Make. The next lines to be executed are therefore `make -f $0 $1` and `exit 0`, as you would expect. Shell scripts are parsed linewise so subsequent lines are ignored.

As a Makefile, again `#` lines are ignored and variable declarations are compatible but lines starting with `true<WS>` and `false<WS>` have to be a valid construct, so they are made into rules. Make doesn't rely much on the rule's recipe (you can do way more weird things by setting `SHELL` to non-shells by the way!), so indented lines are essentially ignored unless the rule is triggered. Next lines are usual stuffs for Makefile. As `true` (and anything follows, see the next paragraph) would be the first and thus default rule target, it has to trigger `all` manually and ensure that `all` is always executed in this way by setting the final `.PHONY` rule.

As a C source code, `#` lines are now preprocessor directives and used to hide the first `true` token from the compiler. As an identifier followed by a colon wouldn't be a valid C code at the top level, `true` should be followed by a comment which extends to the second-to-last line. (There is no technical reason for `*/` to be a requisite here I believe.) The final line is an usual indented C code, which is a part of `.PHONY` which recipe is ignored. Since Make will interpret `/*` as path patterns, they have to be also handled by `.PHONY`.