Output voltage is plotted vs input voltage. The diode is turned off when input voltage is below Von=0.7 V. No current flows through the resistor, so the output voltage is zero. When the input voltage exceeds Von, the diode turns on and behaves as a 0.7 V voltage source. The output Vout = Vin - Von is said to track the input.
Prof. Behzad Razavi talks about this circuit in detail in his video lecture:
youtu.be/4BoxbOs2gs0?t=49m43s
