usually I think of an index as something that would either:
1) order the data differently than what it is stored -or-
2) create a way to find observations faster
so your statement above would create an 'index' (ok - sorry - had to use the word) that will allow you to get the observations faster. Think of it as a card catalogue from an older library - just as each book has a number which will allow you to find the book faster, the index=var1 above will allow the new dataset to be searched faster for specific records.
index is a term that is used EVERYWHERE you are getting data - pretty much means the same thing across the board.
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