One of the first steps after reset it to determine if the user wants the LED display and hex keyboard or the serial TTY interface.

In the source, you see for example:

BIT SAD
BNE TTYKB

TTYKB keyboard and display

So if bit 0 of Port A (PA0 of SAD) is low, the KIM-1 defaults to the LED display and Keyboard interface.

To enable a keyboard, one must have a switch between PIN 21 and Pin V on the application connector.

The 74145 decodes PB1 to PB4 to an output. PB1 is connected to Input a, PB2 to B, PB3 to C and PB4 to D.

In the INIT routine you see Port A Data Direction loaded to 0, which means PA0 to PA7 are inputs.
Port B Datadirection is loaded with $3F, so PB0 to PB5 are outputs.
Next $07 is stored at Port B data, so PB1, PB2 are low, and PB3 and PB4 high. This means output O3, Row 3, is low.