1. if (mousePressed){
2. ....
3. ....
   
4. }

All inside {   }  is only done when the mouse is pressed (so right to the end of draw).
That's a condition. The condition itself is in brackets (), what to do or not to do in curly brackets { }  - again a block of code. When the mouse is not pressed, processing jumps right over the whole {  } block to the end of draw and then to the beginnig of draw, starting again.

with stroke you set the outline color (for the line of the ellipse) to h,s,b, which means: h red, s green, b blue.

with fill you set the filling of the ellipse to black.

with ellipse you draw an ellipse where the mouse is (=mouseX,mouseY) with the previous mouse
position (pmouseY,pmouseY) being width and height

Now you increase the red value h a little. h gets a new value based on its old value.

and with another if you check if h is 100 or higher; if so, you reset it to 0.
So the color changes in a loop.

At the end of draw processing jumps to the beginnig of draw, starting again.

See
http://processing.org/reference/
for all commands.

See tutorials
http://processing.org/learning/

You can auto-nice / auto-format your code with strg-t

Good luck!

Greetings, Chrisir