I just looked it up on perldoc perlvar, but I am still not sure what it
does.

$^I The current value of the inplace-edit extension. Use "undef"
to disable inplace editing. (Mnemonic: value of -i
switch.)

I was reading perl cookbook and saw this example, and was wondering what
that is....

if (@ARGV) {
$^I = ".orig";
} else {
warn "$0: Reading from stdin\n" if -t STDIN;
}