__name__ gives Flask the import name of the module or package that holds the app. Flask uses it to find the app's root path, so it knows where to look for the templates and static folders.
The import name also helps tools around the app. Extensions can use it for debugging information. Flask-SQLAlchemy, for example, uses it to show which code in your app ran a query.
The value depends on how the file runs. When you run it directly, __name__ is '__main__'. When it is imported, __name__ holds the real module name, such as myapp.
Rewriting in plainer words…
This answer doesn't lend itself to a diagram - it reads best . No credits were charged.
