How does : <<'END' work in bash to create a multi-line comment block?

I'm afraid this explanation is less "simple" and more "thorough", but here we go.

The goal of a comment is to be text that is not interpreted or executed as code.

Originally, the UNIX shell did not have a comment syntax per se. It did, however, have the null command : (once an actual binary program on disk, /bin/:), which ignores its arguments and does nothing but indicate successful execution to the calling shell. Effectively, it's a synonym for true that looks like punctuation instead of a word, so you could put a line like this in your script:

: This is a comment

It's not quite a traditional comment; it's still an actual command that the shell executes. But since the command doesn't do anything, surely it's close enough: mission accomplished! Right?

The problem is that the line is still treated as a command beyond simply being run as one. Most importantly, lexical analysis - parameter substitution, word splitting, and such - still takes place on those destined-to-be-ignored arguments. Such processing means you run the risk of a syntax error in a "comment" crashing your whole script:

 : Now let's see what happens next
 echo "Hello, world!"
 #=> hello.sh: line 1: unexpected EOF while looking for matching `''

That problem led to the introduction of a genuine comment syntax: the now-familiar # (which was first introduced in the C shell created at BSD). Everything from # to the end of the line is completely ignored by the shell, so you can put anything you like there without worrying about syntactic validity:

 # Now let's see what happens next
 echo "Hello, world!"
 #=> Hello, world!

And that's How The Shell Got Its Comment Syntax.

However, you were looking for a multi-line (block) comment, of the sort introduced by /* (and terminated by */) in C or Java. Unfortunately, the shell simply does not have such a syntax. The normal way to comment out a block of consecutive lines - and the one I recommend - is simply to put a # in front of each one. But that is admittedly not a particularly "multi-line" approach.

Since the shell supports multi-line string-literals, you could just use : with such a string as an argument:

: 'So
this is all
a "comment"
'

But that has all the same problems as single-line :. You could also use backslashes at the end of each line to build a long command line with multiple arguments instead of one long string, but that's even more annoying than putting a # at the front, and more fragile since trailing whitespace breaks the line-continuation.

The solution you found uses what is called a here-document. The syntax some-command <<whatever causes the following lines of text - from the line immediately after the command, up to but not including the next line containing only the text whatever - to be read and fed as standard input to some-command. Here's an alternate shell implementation of "Hello, world" which takes advantage of this feature:

cat <<EOF
Hello, world
EOF

If you replace cat with our old friend :, you'll find that it ignores not only its arguments but also its input: you can feed whatever you want to it, and it will still do nothing (and still indicate that it did that nothing successfully).

However, the contents of a here-document do undergo string processing. So just as with the single-line : comment, the here-document version runs the risk of syntax errors inside what is not meant to be executable code:

#!/bin/sh -e 
: <<EOF
(This is a backtick: `)
EOF
echo 'In modern shells, $(...) is preferred over backticks.'
#=> ./demo.sh: line 2: bad substitution: no closing "`" in `

The solution, as seen in the code you found, is to quote the end-of-document "sentinel" (the EOF or END or whatever) on the line introducing the here document (e.g. <<'EOF'). Doing this causes the entire body of the here-document to be treated as literal text - no parameter expansion or other processing occurs. Instead, the text is fed to the command unchanged, just as if it were being read from a file. So, other than a line consisting of nothing but the sentinel, the here-document can contain any characters at all:

#!/bin/sh -e
: <<'EOF'
(This is a backtick: `)
EOF
echo 'In modern shells, $(...) is preferred over backticks.'
#=> In modern shells, $(...) is preferred over backticks.

(It is worth noting that the way you quote the sentinel doesn't matter - you can use <<'EOF', <<E"OF", or even <<EO\F; all have the same result. This is different from the way here-documents work in some other languages, such as Perl and Ruby, where the content is treated differently depending on the way the sentinel is quoted.)

Notwithstanding any of the above, I strongly recommend that you instead just put a # at the front of each line you want to comment out. Any decent code editor will make that operation easy - even plain old vi - and the benefit is that nobody reading your code will have to spend energy figuring out what's going on with something that is, after all, intended to be documentation for their benefit.

It is called a Here Document. It is a code block that lets you send a list of commands to another command or program

The string following the << is the marker determining the end of the block. If you send commands to no-op, nothing happens, which is why you can use it as a comment block.