Note, all references in the criteria_ranges grow when the cell is copied to cells below. Example, $B$3:B3 contains an absolute part $B$3 indicated by the $ (dollar) signs and a relative part B3 that changes in cells below.
Step 1 - The first argument pair
$B$3:B3 returns 40475 and B3 returns 40475.
The value in cell B3 is found once in cell range $B$3:B3.
Step 2 - The second argument pair
$C$3:C3 returns "AA" and C3 returns "AA".
The value in cell C3 is found once in cell range $C$3:C3.
Step 3 - The third argument pair
$D$3:D3 returns 1 and D3 returns 1.
The value in cell D3 is found once in cell range $D$3:D3.
Step 4 - All arguments
The COUNTIFS function returns 1 because all argument pairs return 1 meaning this record in row 3 is a unique distinct record, however, there might be duplicate records further down the list.
and returns 1.
The image above shows that row 16, 17 and 19 contain duplicate records.
What are unique distinct rows/records?
Unique distinct rows are all rows but duplicate records are merged into one distinct record, see example in the picture below.