The makesetup script is responsible for creating the Makefile for Python 2.7 and is especially relevant when modules are added to Modules/Setup. See https://github.com/python/cpython/blob/2.7/Modules/Setup.dist#L13-L25 for details.
The usage notes has a note which explains how modules are defined: each on a line in the format <module> ... [<sourcefile> ...] [<cpparg> ...] [<library> ...]. Pay special attention to <cpparg> is anything starting with -I, -D, -U or -C. This means -I/build/zlib-1.2.3 or -DUSE_GLIBC or whatnot.
Here is an example:
pyexpat expat/xmlparse.c expat/xmlrole.c expat/xmltok.c pyexpat.c -I$(srcdir)/Modules/expat -DHAVE_EXPAT_CONFIG_H -DUSE_PYEXPAT_CAPI -DHAVE_SYSCALL_GETRANDOM
The bug happens with makesetup's assumptions about the data appearing in the Setup files:
Line 131 (https://github.com/python/cpython/blob/2.7/Modules/makesetup#L131) has code that seems to be in support of adding definitions to the Makefile for later use therein. However, -DVERSION=123 is a valid ccparg and the makesetup sees it instead as a definition (to be added to the Makefile) because the makesetup script blindly applies *=* that matches -DVERSION=123 and thus breaks the Makefile.
Reproduction:
curl -LO https://www.python.org/ftp/python/2.7.15/Python-2.7.15rc1.tar.xz
unxz Python-${PYTHON_BASE_VERSION}${PYTHON_RC}.tar.xz
tar -xf Python-${PYTHON_BASE_VERSION}${PYTHON_RC}.tar
cd Python-2.7.15rc1
cp Modules/Setup.dist Modules/Setup
echo "breaking foo.c -DBREAKSMAKEFILE=1" >> Modules/Setup
./configure
make
Makefile:226: *** missing separator (did you mean TAB instead of 8 spaces?). Stop.