What does this circuit do? Is it an infrared interface?
The clear thing you show in the middle is an LED.  LEDs can be used as a photodiode (light detector) as well as the normal use of emitting light.

Your circuit appears to be some kind of combined transmitter/receiver using the LED to both transmit and receive.

There's a couple of ways I can imagine it working, and which one it really is kind of depends on where the TXD and RXD lines go.  I'm not going to describe them both.

Regardless, it can transmit and receive but it can't do both at one time.  This would be called "half duplex."