Need some help in understanding this circuit
Note that the temperature signal from the LM35 is compared to the output of the voltage divider formed by R2, P1, and R1.  You could have asked similarly what the point of R1 is.

In theory, you could connect the ends of P1 to power and ground directly.  It could still be adjusted to the desired temperature.  However, the adjustment would be more coarse.  Both R1 and R2 limit the adjustment range, which gives you finer control over the range you do get.

R3 together with R4 controls the amount of positive feedback, or hysteresis in this case.  The bigger R3 is relative to R4, the larger the hysteresis "dead zone".

The purpose of hysteresis is to crisply switch the output on or off, not have it being partially driven when the temperature is near the threshold.  Put another way, hysteresis provides the "snap action" so that the load is always driven full on or full off.