readfile just reads and output the file. The PHP interpreter is not invoked. You could pass it the name of a file containing the text of a novel, the code of a C++ program, or in this case a PHP script, and you will ne shown what it contains, and that's all.
However, when you call readfile to output to a HTML page, what is output is HTML. So if your file contains:
<div>Hello world!</div>
You will see:
Hello world!
It is not that readfile started reading at "Hello", rather, you didn't see the HTML tags because they are just markup.
Let's consider this file:
<?php
echo $_SESSION['FirstName'] . " " . $_SESSION['LastName'];
echo "<br />";
echo $_SESSION['System'] . "<br /><br />";
?>
You can imagine that your web browser interprets it as a HTML snippet containing an invalid HTML element:
<?php echo $_SESSION['FirstName'] . " " . $_SESSION['LastName']; echo "<br />
After this comes some text:
"; echo $_SESSION['System'] . "
then two HTML elements:
<br /><br />
then more text:
"; ?>
Hence, what you see is:
"; echo $_SESSION['System'] . "
"; ?>
So, it is not the case that readfile "starts reading somewhere in the middle of lookupsplash.php".
Having said all this, I wonder if you even want to use readfile in the first place. Were you perhaps looking to use [man]include[/man] instead?