Proposition 5.1.3 is often called the lattice isomorphism theorem, because it establishes a lattice isomorphism between the subgroups of $G$ that contain $K$ and the subgroups of $\tau(G)$.
In these lattices, the partial order is set-inclusion, the JOIN of two subgroups $A,B$ is:
$\langle A,B\rangle$-the subgroup GENERATED by $A$ and $B$ (this is usually larger that the set-union of the subgroups involved).
and the MEET is: $A \cap B$.
The subgroups containing $K$ are also called "the subgroups over $K$".
It is enlightening to attempt to prove:
$\tau(\langle A,B\rangle) = \langle(\tau(A),\tau(B)\rangle$
$\tau(A \cap B) = \tau(A) \cap \tau(B)$.
Equivalently, one can show that:
$\tau(A) \subseteq \tau(B) \iff A \subseteq B$ (that is, $\tau$ induces an order-preserving map between these two lattices).
Often, it is only established in most group-theory texts that this is merely a bijection.
Rather than prove the lattice isomorphism theorem (it is straight-forward, and is a direct consequence of the Fundamental Isomorphism Theorem), I will illustrate it with an example:
Suppose $G = D_4$, the dihedral group of order 8. Recall that:
$D_4 = \langle r,s: r^4 = s^2 = 1, rs = sr^{-1}\rangle = \{1,r,r^2,r^3,s,sr,sr^2,sr^3\}$.
To specify a homomorphism $\phi: D_4 \to G'$, it suffices to specify $\phi(r)$, and $\phi(s)$, and to verify the relations of $D_4$ still hold.
We will now do so for $\phi:D_4 \to \Bbb Z_2 \times \Bbb Z_2$, by setting:
$\phi(r) = (1,0)$
$\phi(s) = (0,1)$.
Note that $4\phi(r) = 4(1,0) = (1,0) + (1,0) + (1,0) + (1,0) = (0,0) + (0,0) = (0,0)$, and:
$2\phi(s) = 2(0,1) = (0,1) + (0,1) = (0,0)$, while:
$\phi(rs) = \phi(r) + \phi(s) = (1,0) + (0,1) = (1,1) = (0,1) + (-1)(1,0) = \phi(sr^{-1})$.
Thus:
$\phi(1) = (0,0)$
$\phi(r) = (1,0)$
$\phi(r^2) = (0,0)$
$\phi(r^3) = (1,0)$
$\phi(s) = (0,1)$
$\phi(sr) = \phi(s) + \phi(r) = (1,0) + (0,1) = (1,1)$
$\phi(sr^2) = (0,1)$
$\phi(sr^3) = (1,1)$.
Note that $\text{ker }\phi = \{1,r^2\}$, and this is a normal subgroup of $D_4$.
The subgroups of $D_4$ are:
$D_4$
$\langle r \rangle = \{1,r,r^2,r^3\}$
$\langle r,s\rangle = \{1,r,s,sr\}$
$\langle r^2,sr\rangle = \{1,sr,r^2,sr^3\}$
$\langle r^2\rangle = \{1,r^2\}$
$\langle s\rangle = \{1,s\}$
$\langle sr\rangle = \{1,sr\}$
$\langle sr^2\rangle = \{1,sr^2\}$
$\langle sr^3\rangle = \{1,sr^3\}$
$\{1\}$.
Of these, the subgroups "over $\text{ker }\phi$" are:
$D_4$
$\langle r\rangle$
$\langle r^2,s\rangle$
$\langle r^2,sr\rangle$
$\langle r^2\rangle$
and $\phi$ induces the following bijection:
$D_4 \leftrightarrow \Bbb Z_2 \times \Bbb Z_2$
$\langle r\rangle \leftrightarrow \{(0,0),(1,0)\}$
$\langle r^2,s\rangle \leftrightarrow \{(0,0),(0,1)\}$
$\langle r^2,rs\rangle \leftrightarrow \{(0,0),(1,1)\}$
$\langle r^2\rangle \leftrightarrow \{(0,0)\}$
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Why this is important:
This isomorphism theorem generalizes well to $R$-modules, and tells us how much of the internal structure of a module $M$ carries over to to a quotient module $M/N$. For example, If a subspace $U$ of a vector space $V$ properly contains the kernel (null space) of a linear transformation $T$, then $T(U)$ is a non-trivial subspace of $T(V)$. We can often use this to deduce when a system of linear equations has a non-trivial (non-zero) solution.