It's just a name shadowing.

Copying the code they wrote:

  for i in xrange(3):
      def func(x, i=i): # the *value* of i is copied in func() environment
          return x * i
      flist.append(func)

That could also be written "def func(x, foo=i): return x * foo". It's just copying i's value to another variable. In the next line, i's value is still 1, 2, or 3, so when the function is called during the next line of the body of the loop, the value held by i is bound to foo.

It's not evaluating a thunk representing i, which is how lazy variables are evaluated in Haskell.