1. Finds the substrings that are popular in passwords. 2. Combines them to make likely passwords that haven't been tried yet. 3. Rinse and repeat
Useful against noob passwords - of which are there many in the wild - and more effective for some applications than the usual dictionary search.
But ineffective against randomised strings like KPF27k5ANv791P2Yi88xd88D7iALX3kH, or against XKCD random word salad passwords like QuantumGerundApoptosis as long as they include at least one unusual word.