So in a sense, this tool is a 'search engine for words', or a sentence to word converter. It acts a lot like a thesaurus except that it allows you to search with a definition, rather than a single word. The engine has indexed several million definitions so far, and at this stage it's starting to give consistently good results (though it may return weird results sometimes). For example, if you type something like 'longing for a time in the past', then the engine will return 'nostalgia'.
It simply looks through tonnes of dictionary definitions and grabs the ones that most closely match your search query.
The way Reverse Dictionary works is pretty simple.