I think that is a feature designed to localize themes. It's possible that the function <?php _e( 'Not Found', 'twentyten' ); ?> would print the string "Not Found", while "twentyten" indicates the "theme_textdomain" where language files can be found for localization (translation?). I believe the actual path to the language files would be described in the themes functions.php file. In twentyten, I think this is it:
// Make theme available for translation
// Translations can be filed in the /languages/ directory
load_theme_textdomain( 'twentyten', TEMPLATEPATH . '/languages' );
My best guess as a novice, would be that "php_e" prints the phrase "Not Found", and "twentyten" describes the path where the language files can be found..
....At least, I think that's what it means. Maybe someone who knows for sure will confirm or correct my thinking.
:-)