np.identity(16)[s:s+1] is actually just a way of creating a one-hot encoding of the state space. The environment represents the position in the grid-world as a number between 0 and 15. Since each state is independent of the others, we need to use a one-hot version instead, and that is what the line of code does. The
[s:s+1] is simply a way of indexing the correct column we want from the identity matrix.
Hope that clarifies things.