Caret is a word designator in bash's history scheme. Here it acts as a way to mark the thing with the thing being replaced. There's a more detailed explanation in [1] and a quick read in [2]. Essentially bash let's you do manipulation and re-execution of commands from your history and one of the manipulations is via word substitution.

[1] https://www.gnu.org/software/bash/manual/html_node/Word-Desi...

[2] https://www.johndcook.com/blog/2022/10/21/shell-replace-word...