Its the apache 'lookback' feature , which does not I think have a proper name as such ? anyway
Basically if apache can not find the file it is pointed at it will 'lookback' to the previous part of the url and see if indeed that is a file , so with
apache knows that no_existy does not exist so it goes back to index/ which also does not exist as a directory so it checks to see if index.html or index.htm (or whatever your text/html mimes are) to see if one of those exist , if it does it displays it.
its useful for search-engine friendly urls where you can use this 'feature' to pass info in the URL without using '?' and '&' etc
if index.php exists index.php then has $_SERVER['PATH_INFO']; available which will contain the string '/var1/var2' which can then be used as required.
Off the top of my head I cant remember which module controls this behaviour though it is possible to disalble it via 'options' in .htaccess or httpd.conf
MVC is the current buzz in web application architectures. It comes from event-driven desktop application design and doesn't fit into web application design very well. But luckily nobody really knows what MVC means, so we can call our presentation layer separation mechanism MVC and move on. (Rasmus Lerdorf)