2nd question - can anyone tell me what the line below in bold/underlined is trying to do?  I have commented it out, as it was making the test fail... 

Thanks!

Here is the updated code, which now compiles:

@isTest
private class AssetTest {
//Classes always have to be uppercase
    static testMethod void testContractLine()
    {      
        Profile pr = [select id from profile where name=: 'System Administrator'];
        User u = new User(alias = 'standt', email='standarduser@vauto.com',emailencodingkey='UTF-8', lastname='Testing', languagelocalekey='en_US',localesidkey='en_US', profileid = pr.Id,timezonesidkey='America/Los_Angeles', username='testemail1@vauto.com');
        insert u;
        System.runAs(u)
        {
            Account a = setupAccount();
            Contact co = setupContact();
            Opportunity o = setupOpportunity(a,co);
            Contract c = setupContract(o,a);
            Asset ae = setupAsset(a,c);
            
            Test.startTest();
                ae.Status = 'Active';
                update ae;
                
                List <Contract_Line__c> contractLines = [select Id from Contract_Line__c where Contract__c =: c.Id];
                
                //System.assertEquals(contractLines.size(),1); 
                
            Test.stopTest();
        }
    
    }
    //THE FOLLOWING IS OUR TEST DATA void means we're not returning anything
    static Account setupAccount(){ 
        Account a = new Account();
        a.Name = 'test';
        insert a;
        return a;
    }
    
    static Opportunity setupOpportunity(Account a, Contact c){
        Opportunity o = new Opportunity ();
        o.Name = 'test'; 
        o.CloseDate = System.today();
        o.StageName = 'Prospecting';
        o.AccountId = a.Id;
        o.Syndication_Primary_Contact_2__c = c.Id;
        insert o;
        return o;
    
    }
    
    static Contract setupContract(Opportunity o, Account a){
        Contract c = new Contract();
        c.Name = 'test';
        c.StartDate = System.today();
        c.Opportunity__c = o.Id;
        c.AccountId = a.Id;
        insert c;
        return c;
    }
    
    static Asset setupAsset(Account a, Contract c){
        Asset ae = new Asset();
        ae.Product2Id = '01tV0000000gY2n';
        ae.Name = '30 Day Deposit';
        ae.Price = 1400.00;
        ae.PurchaseDate = System.today();
        ae.InstallDate = System.today();
        ae.Contract__c = c.Id;
        ae.AccountId = a.Id;
        insert ae;
        return ae;
    
    }
    
    static Contact setupContact(){
        Contact co = new Contact();
        co.FirstName = 'Test';
        co.LastName = 'McGhee';
        insert co;
        return co;
    }

}

Agreed with Enth,

//ae.Price = '1400.00'; should be

ae.Price = 1400.00; //without the single quotes as Price field is of Double Datatype

//ae.Product2 = '30 Day Deposit'; should be 

As you are assigning a value it should be assigned to a Field and there is no field as Product2(Infact it is an object),you should be checking on what field of that object you want to populate it.

You need to check the API documentation for Asset object to get on which field you want to assign that value,please go through the below link for the same:-

http://www.salesforce.com/us/developer/docs/api/Content/sforce_api_objects_asset.htm

//System.assertEquals(contractLines.size(),1); 

is checking whether contractLines.size() is equal to ! or not,if it then it would return True else false.Basically,it is comparing the 2 parameters.

You can go through the below link for the same :-

http://th3silverlining.com/2010/09/07/salesforce-system-assert-vs-system-assertequals/