For lack of the input data this program expects, it is impossible to say what this program is trying to achieve.
It runs, but it seems not to output anything meaningful, so it is very well possible it's logic is wrong.
A program should be light and agile, its subroutines connected like a string of pearls. The spirit and intent of the program should be retained throughout. There should be neither too little or too much, neither needless loops nor useless variables, neither lack of structure nor overwhelming rigidity." - The Tao of Programming, 4.1 - Geoffrey James
Second CountZero's objection to lack of input data.
However, when I run your code, supplying a test file (multi-char strings, some of which satisfy either of two contradictory definitions of bigrams* and some non-bigram strings such as nobigram, each separated by 2 newlines), your code returns " : 1" for pairs of words -- each concatenated with the following word (except in the case of "nobigram" which is first concatenated with the preceding word and then with the following word).
I cannot reproduce your "loop is ended after splittingEXCEPT (and then not perfectly) by removing the doubled curly braces at Lns 9-10 and 22-23, in which case only a single instance of the final two words of sample data are returned (along with the
" : 1"). (Update: That's not a correct count for either definition cited for a bigram)
As to "why found is used," it seems possible, in the overly limited context you've provided, that it's intended to be a counter -- a variable in which to stash the number of bigrams found. I realize that seems exessivly obvious, but, IMO, it's the only obvious possible-answer.
Wikikpedia says "A bigram or digram is every sequence of two adjacent elements in a string of tokens, which are typically letters, syllables, or words; they are n-grams for n=2.
The Free OnLine Dictionary defines a bigram as a two-letter word (FOL is NOT, IMO, a reliable source, but Merriam-Webster and others define bigram only for those using paid access or their (one-shot) free trial).
For clarity, here is the content (verbatim) of the text file: