1. COUNTIFS counts the number of scores less than 5 in current row ($C2:$F2 - row numbers change when the cell is copied up/down). Possible results in this table are 0, 1, 2, 3, or 4;
2. MATCH returns the number of condition value (condition values are defined as array {0;1;4}), the COUNTIFs result is matching. The type of match is determined with last parameter - as it is set 1, then when COUNTIF returns 0 then MATCH returns 1, when COUNTIFs returns 1, 2, or 3 then MATCH returns 2, and when COUNTIFS returns 4 then MATCH returns 3;
3. CHOOSE returns a value from list of parameters starting from 2nd one (pass, half pass, fail). Which value is returned, is determined by 1st parameter - i.e. by result of MATCH part of formula.