Long story, you can use Search to find it (search on "Havok"), but in a nutshell ZOS used Havok's engine as a prototyping tool early on while they were developing the actual engine.

As for what a game engine is, this link will give you more information than you'll ever need!

http://en.wikipedia.org/wiki/Game_engine

Basically, it's the term that refers to the game client you run on your PC when you play the game that displays the graphics, plays the audio etc, the program that gets loaded when you click 'Play' in the Launcher.

The term originally was coined to refer to the core of off-line 3D video games such as Doom, Quake, etc. , with MMOs it can also refer to the software running on the servers which runs the virtual world, though it's not so commonly used in that way .. where the 'engine' provided games developers with a ready-made 'core' which they could use to build their game: graphics and audio are highly specialised areas of software development and take a large amount of time and money to develop, so some smaller development shops license that high tech. so they can develop a game without needed such expertise.

If you do Search on this you'll find a long thread from many weeks who where a lot of chest-thumping was going on by nerds exchanging waffle about this engine or that engine .. it's a willy-waving exercise for some basement dwellers it seems. .. the thread title was a puerile "ZOS YOU LIED TO US ABOUT THE ENGINE" kind of thing.

A 'green' post in that thread clarified things.