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$xoopsOption is an array of options used by XOOPS in some aspects to show the page correctly.
E.g.
$xoopsOption['template_main'] sets the template to be used in the main contents (module output area)
$xoopsOption['theme_use_smarty'] is a setting to determine whether the theme uses smarty or not.
$xoopsOption['pagetype'] can be either admin or user and determines which language files are included, admin or user.
$xoopsOption['nocommon'] if set to 1 will not include common.php
There are a few more to disable certain blocks, if you should desire that, but I have rarely found a reason to do so. The most used is $xoopsOption['template_main'].