Answer:
The red side of the magnetic needle always points to the North (we can assume that a ray is being created in this direction), and the front point of the compass (where the 12 would be in a clock) represents the direction in which you are walking (another ray comes in this direction).
Both rays are creating an angle, where the vertex is the center of the compass.
Then the angle in the image represents the angle that is being formed between your actual path and the North.
Or in other words, the angle represents that you are moving at θ from North.
(where θ is positive because is measured counterclockwise)