You need to remove the f1 file to protect its content from the following cat/sort pipeline redirection.
The shell will read a block of data, process the lines in that data, and the converted lines will be written as a block. When you remove the file its content remains available on the disk until the file is closed and you can happily attach the cat/sort pipeline standard output to the new file f1.
Consider the following:

Code:

% printf '%-100000s\n' f1_line{1..3}>f1
% { rm f1 && cat - |sort > f1;}< f1    
% wc -l f1                         
3 f1
% { cat - |sort > f1;}< f1 
% wc -l f1                
1 f1

A subshell is started with its standard input connected to f1.
The subshell runs the rm command (it happens to have its stdin connected
to f1, but this doesn't matter as rm ignores the input).
A new f1 is created and attached to the standard output of the pipeline, so then the pipeline has the
old f1 on its standard input, and the new one on its standard output. Notice that this:

Code:

% cat f1 && sort f1 > f1  
a
b
c

... is different than this:

Code:

% cat f1|sort > f1   
% wc -l f1
0 f1

Yes, the ; works, but in some circumstances you can get an inconsistent result. Consider the following:

Code:

% head f[12]
==> f1 <==
this is file1
the quick brown fox jumped over the lazy dog
this is file1
who let the dogs out
this is unix
this is file1

==> f2 <==
this is file2
% chmod u-w .
% { rm f1 && cat - f2 | sort -u > f1;} <f1
rm: cannot remove `f1': Permission denied
% wc -l f1
6 f1
% { rm f1; cat - f2 | sort -u > f1;} <f1
rm: cannot remove `f1': Permission denied
% wc -l f1                              
1 f1

Hope this helps.