The curly braces ensure that whatever is in the braces is computed first and the result of that computation is passed up.Without them, the value would not be computed and whatever is there would be seen as a string literal instead.
This is possible to do and it is called a sequence.
Even though SQL has not implemented all the XQuery/XPath functions, there are still quite a number of useful functions that can be used within the XQuery to both manipulate the data or within a test.
By using sql:variable or sql:column, we are also able to insert entire XML structures straight into the XML document that we are modifying. node that concatenates two existing nodes by selecting the values as a sequence.
The XQuery syntax also provides the ability to construct elements by using the keyword "element" instead. If you was to try and insert a text node into a simple type of a typed XML document then you would probably see an error like this: element.
Although the example is just creating a single text node from a simple string literal, you could use variables, columns or functions when creating the text node.