What does the line '!/bin/sh -e' do?

That line defines what program will execute the given script. For sh normally that line should start with the # character as so:

#!/bin/sh -e

The -e flag's long name is errexit, causing the script to immediately exit on the first error. A more detailed description from man sh:

If not interactive, exit immediately if any untested command fails. The exit status of a command is considered to be explicitly tested if the command is used to control an if, elif, while, or until; or if the command is the left hand operand of an && or || operator.

 #!/bin/bash   

this is the first line in the script to tell the system to use bash shell to execute the script.