The ON SYSOUT statement indicates that the sysout file referenced by the SYSUT2 DD statement is the input file to be balanced.
The JCL for this rule uses the IEBGENER utility to produce the sysout file that is identified using the ON SYSOUT statement. However, the same sysout file could have been generated by any user application program or some other utility. For more detailed information about utilities, see the INCONTROL for z/OS Utilities Guide.