C.set() is a constructor that creates an object that uses self. When you run the C.set():Option("1") line you basically do the following:
local object = C.set()
object.Option(object, "1") --self means that the object itself is passed as first arg
--this is hidden through the use of the : symbol when calling the function
For organization there’s a chance that set is a submodule under the main Icon module specifically for that object.