Middle Europe is a not-quite-technical term for the countries comprising the center of the continent. In that sense, Germany is the heart of Europe (and, by extension, the West as a whole), lying at the middle of Middle Europe. This is true in a non-literal sense, too—despite the rather poor showing in the first half of the 20th century, Germany has long been at the center of cultural and intellectual development in the West.
But what is this elusive "West" of which we speak? Like most things historical, it's hard to pin down and there isn't a single agreed-upon definition, but generally speaking, the West (or Western civilization) is a body of cultures forming a more or less consistent worldview. The salient features of the Western worldview are a commitment to human reason, a belief in progress, and the idea of individual human liberty and freedom of conscience.
As things become increasingly postmodern, Westerners have distanced themselves from unmitigated faith in human reason, though even the most postmodern philosophers haven't been able to abandon it entirely. After all, philosophy depends on the articulation of ideas (not always clearly, as Kant and Derrida have taught us), and ideas must be expressed at least in part through rational means.
Such rational expression seems particularly the forte of the Middle Europeans, particular the Germans. It should come as no surprise that both the Reformation and the Enlightenment largely originated in Germany. The Reformation reemphasized the role of reason in the interpretation of Scripture, and the Enlightenment went so far as to assert that human reason was the only way anything could be known (any other authority was summarily dismissed as mere superstition or insupportable).
But through all this celebration and even worship of reason there ran a different chord, a more physical and less abstract one that didn't dismiss reason but didn't entirely depend on it, either. That chord was existentialism, expressed by French philosophers in the neat little epigram "existence precedes essence," but centered on the idea that we are physical beings who sometimes behave irrationally and who inherently yearn for meaning.
After supernatural authority had been toppled by the Enlightenment, people were left with an emptiness and lack of meaning no one was quite sure how to fill. Plenty of Middle European writers were able to artfully identify and depict the problem, few had any solution. Among the most artful and most brilliant of the identifiers was a mysterious young Czech named Franz Kafka, whose black humor and genius conveyed the precise state of angst and despair so many were feeling.
Herman Hesse was one of the few who both identified the problem and offered an alternative, but his brand of Eastern-influenced spirituality was so nebulous that few heeded his message (except Hippies in the 1960s who thought it was groovy). Nevertheless, Hesse is one of the great novelists, and his books are worth reading if for no other reason than that he was such a capable observer of human nature and such an original stylist.
The greatest of the Germanic/Middle European writers, however, was Johann Wolfgang von Goethe, whose Faust plays are among the best written works of any place and any time. Writing in the 18th century, he brought together the rationalism of the Enlightenment and the existentialism of later generations. In Faust, the protagonist makes a deal with the Devil to serve him in hell as long as the Devil will do anything for Faust while he remains alive. Faust is a scholar, but also a man, and Goethe artfully shows the tension between reason and existence.
Some of the most destructive philosophies of the Modern Era originated in central Europe, and to a great extent each of them reflected this same tension, though usually not as eloquently. Karl Marx and Friedrich Engels' Communist Manifesto and Adolf Hitler's Mein Kampf took things in a decidedly political direction, while Friedrich Nietzsche explored anti-spirituality and quasi-religious nihilism. For each of them, the attempt at existential/rational resolution ended in madness and despair.
If you're starting to think Middle Europe is a very dark place, you're getting the right impression. The intellectuals and artists assembled there have gone out of their way to exclude the possiblity of a divine presence, and to promote man to the central entity of the universe. Of course, Martin Luther was a Middle European, but his message was better disseminated throughout Western Europe than in his own land.
Reading the literature of places like Germany, Poland, Austria and Czechoslavakia needn't be a wholly dreary affair, however. Many of the writers from those countries managed to pen vibrant works, despite their gloomy outlook and godless worldview. And in many ways, the views they espoused are the views accepted by the entirety of Western civilization clear to the present day; achieving a familiarity with them is one of the first steps toward combatting them in the name of Christ.