When a program creates a file or directory, it asks for a starting mode: 666 (rw-rw-rw-) for regular files and 777 (rwxrwxrwx) for directories. The umask (user file-creation mask) then removes bits from that request. Each process has its own umask, inherited from its parent, so the value set in your shell controls the permissions of everything you create from it.
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