Sorry Tony, it on the linked MS page.
init.txt is just

set varname=

There should be no carriage return or linefeed.
To create this file from the command line:

C:\>COPY CON INIT.TXT

   SET VARNAME=^Z

I tried creating it on the file from within the batch file by using

echo SET VARNAME=>init.txt

but that creates a CR or LF at the end of the file. This mean that when you later concatenate textfile file onto the end of init.txt and copy them into varset.bat you end up with

set varname=

games

rather then

set varname=games

Sorry long answer.