The preference panel contains a checkbox to turn key bindings on or off. By default it is off. When the item is on, typing certain characters inserts an entire string in the source file. For instance, typing ^ inserts ^{ }, with the cursor positioned inside the brackets.

Key binding elements can be modified and created using the Key Bindings Editor built into TeXShop.

How do I configure TeXShop?
Modifying Key Bindings