The first use of the word root is to tell GRUB where to look for the files it is going to boot from. It is going to look in the first partition on the first hard disk. In this case, as it happens, /boot is on a separate partition (the first one). That is why the kernel and initrd (the files vmlinuz and initrd) are directly under the top-level directory of that partition. The second use of the word root is to tell the kernel which partition it should regard as the root partition (to be mounted at /) of the Linux system when it boots.
If, on the other hand, the first partition was a swap partition and the second partition was to be the Linux root partition, and included the /boot directory, then an appropriate entry might look something like this:
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