It's a way of writing strings without having to escape things or having line breaks mess things up (a heredoc, if you're familiar with that terminology). For instance,

    <<-END
      this is some text
    END

will give you a string containing " this is some text\n". END can be anything.

It's particularly useful in metaprogramming, since you can maintain formatting, and you don't have to escape " or ' if they happen to show up in your code.

What's interesting in the OP's example is that you end up passing three strings " text of one\n", " text of two\n", " text of three\n". I had no idea that would happen, though I have seen things like

    define_method <<-RUBY, __FILE__, __LINE__ + 1
      some_code
    RUBY

so it makes sense. Ruby treats anything on the same line after the comma as separate arguments, so even though __FILE__ comes after <<-RUBY and before RUBY, it really appears after the final RUBY to the interpreter.

That's ruby's heredoc syntax: http://en.wikipedia.org/wiki/Here_document

I had no idea it could be nested like that and I've been using ruby for 8 years. Crazy!

As another non-rubyist with too much perl and bash under my belt, I'm guessing it's heredoc - the <<-FOO syntax means "grab the lines following until you see FOO alone on a line, shove it all in a string, and pass it as this argument (in bash it passes a filename that represents half of a pipe which has been sent the content).