The caret (^) translates to the XOR operator, which is a "bitwise exclusive or". In plain english it means "either, but not both". Here's what it does:
decimal 1 = binary 001 decimal 1 = binary 001
XOR XOR
decimal 2 = binary 010 decimal 3 = binary 011
= =
decimal 3 = binary 011 decimal 2 = binary 010
More info on the MSDN page for bitwise operations.
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