Spoiler: The <> combines lists as cross joins (for-loop within another for-loop). The lambda maps to new lists ['z', 'a'] and ['z', 'b'] (strings are just char arrays). It then computes the various combinations to recombine them so ['z', 'z'], ['z', 'b'], ['a', 'z'], ['a', 'b']. Note it's not all permutations since you don't have ['z', 'a'] even though that's actually one of the "base" arrays we got from the lambda. It took me a long time to really internalize that and it's still probably not a function I'd reach for.
It is kind of cool, though, that you can do `(,) <$> lista <> listb` and you get a nested for loop.