This line is read "pound include i-o-stream dot h". The effect of this line is to essentially "copy and paste" the entire file iostream.h into your own file at this line. So you can think of this syntax as replacing the line #include <iostream.h> with the contents of the file iostream.h. #include is known as a preprocessor directive.
A simple program
Preprocessor directive
//include this file for cout
#include <iostream.h>
int main()
{
//print out the text string,
//"Hello, World!"
cout << "Hello, World!"
  << endl;
return 0;
}
Where is the file iostream.h?
This file is located somewhere in your include path. The include path indicates the directories on your computer in which to search for a file, if the file is not located in the current directory.

Why do I need to include iostream.h?
In this case,
iostream.h is a file containing code for input/output operations. You need to include iostream.h so that the compiler knows about the word cout, which appears a couple of lines below.