I'll be the first to get this one!
It's a step cut intended to mount the 40mm grenade launcher (M203). The reason it is on your civvie AR is mostly for novelty purposes - to have a true M4 profile bbl. Of course, you could argue that it reduces weight or that you might mount a 37mm flare launcher (looks like M203) or other accessory to it. (I think they make a 12GA adapter or something ???) Probably could even mount an M203 with the right permit/license....