file_exists() is a function
It takes an argument, which goes inside its set of brackets. It returns a boolean (true/false) value; true if the file specified in the argument exists, and false if it doesn't.
In this case, the argument is $file_name. So, we get:
file_exists($file_name)
'if' executes some code (which you haven't included) if the statement in the brackets evaluates to "true".
So, if file_exists($file_name) returns "true", then if will execute some code.