"That Is" is a common idiom that means "in other words"
From http://dictionary.reference.com/browse/that?s=t
- that is, (by way of explanation, clarification, or an example); more accurately:
I read the book, that is, I read most of it.
Also, that is to say.
I believe his account of the story, that is to say, I have no reason to doubt it.
The only problem with the quoted sentence that I can see is the punctuation: there should be a semi-colon before "that is" and a comma after it:
Let X := a and Y := b; that is, X is foo and Y is bar
(If := is the way you really want to express 'equals'. A simple equals sign is the usual way.)