jQuery n00b here...

I was going over some code, and was wondering if someone could explain part of it:

1.     $.getJSON('/functions.php', { get_param: 'value' }, function(data) {
2.       $.each(data, function(index, element) {
3.         $('body').append($('<div>', {
4.             text: element.name
5.         }));
6.       });
7.     });

My question is with regard to:

1.     $('<div>', { text: element.name })

My understanding from the docs is that is a selector with a context.  How exactly does this work/what is it doing?

Thanks!