What does the generic nature of the class Class mean? What is T?

Type parameter <T> has been added to java.lang.Class to enable one specific idiom¹ – use of Class objects as type-safe object factories. Essentially, the addition of <T> lets you instantiate classes in a type-safe manner, like this:

T instance = myClass.newInstance();

Type parameter <T> represents the class itself, enabling you to avoid unpleasant effects of type erasure by storing Class<T> in a generic class or passing it in as a parameter to a generic method. Note that T by itself would not be sufficient to complete this task²: the type of T is erased, so it becomes java.lang.Object under the hood.

Here is a classic example where <T> parameter of the class becomes important. In the example below, Java compiler is able to ensure type safety, letting you produce a typed collection from a SQL string and an instance of Class<T>. Note that the class is used as a factory, and that its type safety can be verified at compile time:

public static <T> Collection<T> select(Class<T> c, String sqlStatement) {
    Collection<T> result = new ArrayList<T>();
    /* run sql query using jdbc */
    for ( /* iterate over jdbc results */ ) {
        T item = c.newInstance();
        /* use reflection and set all of item’s fields from sql results */
        result.add(item);
    }
    return result;
}

Since Java erases the type parameter, making it a java.lang.Object or a class specified as the generic’s upper bound, it is important to have access to the Class<T> object inside the select method. Since newInstance returns an object of type <T>, the compiler can perform type checking, eliminating a cast.

¹ SUN Oracle has published a good article explaining all this.
² This is different from implementations of generics without type erasure, such as one in .NET.
³ Java Generics tutorial by Oracle.