I'm reading some works on the hierarchical model in statistical mechanics and I came across an strange definition, which I need to clarify. Consider a finite set $\Lambda \subset \mathbb{Z}^{d}$. The set of all functions $\varphi : \Lambda \to \mathbb{R}$ is isomorphic to $\mathbb{R}^{|\Lambda|}$, so that these functions are represented as vectors $\varphi = (\varphi_{x})_{x\in \Lambda} \in \mathbb{R}^{|\Lambda|}$, and are called fields. Given $\xi_{1},...,\xi_{N} \in \mathbb{R}^{|\Lambda|}$, we set $\varphi_{j} := \sum_{k> j}\xi_{k}$ for each $j=0,...,N-1$ and $\varphi_{N} = 0$.
Now the author states the following: "Given $X\subset \Lambda$, let $\mathcal{N}_{j}(X)$ be the algebra of functions measurable with respect to the $\sigma$-algebra generated by $\{\varphi_{j}(x), \hspace{0.1cm} x \in X\}$. In more down to earth terms, an element of $\mathcal{N}_{j}(X)$ is a function only of fields at points $x \in X$."
I don't understand what is this $\sigma$-algebra. It seems confusing to me. What does it mean?
Edit: The text can be found in math.ubc.ca/~db5d/Seminars/PCMILectures/lectures.pdf