This is an alphatested material. The brightness values of the handed image (grass_patch_alpha) are compared with the value specified after alphatest (parm3). This value ranges from zero to one. If the brightness is below this value, the specific pixel won't get drawn. parm3 can be set with "shaderParm3" on the entity using this material.
Regarding the z-fighting: Don't just move the patch downwards. Instead, select the boundary vertices and drag them downwards. Z-fighting occours if the distance to two different points in a tris is roughly the same for a pixel drawn on the screen. Due to rounding errors the renderer sometimes consider the first surface to be the closest one, and if you move a bit it considers the second one to be closer. This is results in "flickering" between those two surfaces. To avoid this, the surface must differ strong enough from each other. For intersecting or touching surfaces this can be achieved if the surface normals differ strong enough. See image below