On a Linux shell, what is echo $1 supposed to do?

$1 (or $2,$3 ...) is supposed to be the arguments given to some script.

Here's an example script:

#!/bin/bash

echo "\$1 is now $1"
echo "\$2 is now $2"
echo "\$3 is now $3"

And the example output

jaba@lappy:/tmp$ ./example.sh 
$1 is now 
$2 is now 
$3 is now 
jaba@lappy:/tmp$ ./example.sh 1 2 3
$1 is now 1
$2 is now 2
$3 is now 3

$1 is the argument passed for shell script.

Suppose, you run

./myscript.sh hello 123 

then

$1 will be hello

$2 will be 123

In your case $1 prints default login shell used because this argument was passed to script that runs your login shell. But if you'll write and run your own script in current session, $1, $2, ... will be parameters that you send to your script.