What follows comes from Algebraic Theories, pag. 7.
Definition An algebraic theory is a small category $\mathcal{T}$ with finite products. An algebra for the theory $\mathcal{T}$ is a functor $A:\mathcal{T}\longrightarrow Set$ preserving finite products. We denote by $Alg\ \mathcal{T}$ the category of algebras of $\mathcal{T}$. Morphisms, called homomorphisms, are the natural transformations. That is, $Alg \ \mathcal{T}$ is a full subcategory of the functor category $Set^{\mathcal{T}}$.
Definition A category is algebraic if it is equivalent to $Alg\ \mathcal{T}$ for some algebraic theory $\mathcal{T}$.
I can't understand the following example:
Sets: the simplest algebraic category is the category of Sets. An algebraic theory $\mathcal{T}_1$ for Sets can be described as the full subcategory of $Set^{op}$ whose objects are the natural numbers. In fact, since $n=1\times\ldots\times 1$ in $Set^{op}$, the category $\mathcal{T}_1$ has finite products. And every algebra $A:\mathcal{T}_1\longrightarrow Sets$ is determined, up to isomorphism, by the set $A(1)$, since $A(n)\equiv A(1)\times\ldots\times A(1)$. More precisely, we have an equivalece functor $$E:Alg\ \mathcal{T}_1\longrightarrow Set,\ \ \ \ A\longmapsto A(1)$$
What I can't understand:
1) Why $Set^{op}$?
2) Why $\mathcal{T_1}$ has finite products?
3)"....whose objects are natural numbers..." and morphisms?