The * character represents one or more characters, the ^13 is a paragraph break (carriage return). This means one or more characters followed by a carriage return (a paragraph)

The \1 represents the search pattern found in the first set of parentheses. Thus, a paragraph followed by the exact same paragraph. The same could be done using {2} which means 2 x the preceding pattern.

You can find more about wildcards here: http://www.gmayor.com/replace_using_wildcards.htm