The are three layers of polarizing material. The two outer layers are at right-angle polarizations to each other and normally would be completely opaque on their own. When power is applied to the liquid crystal, it twists the crystal's polarization to be at a 45° angle to the other two layers, which then permits some of the incident light to pass through.
An optically transparent waveguide display can use an LCD layer to block light coming through the front and then not render graphics on that area of the display. It will be opaque black at that point (though rather fuzzy around the edges, as the LCD won't be in focus).
Magic Leap 2 actually employs this technique. It's... a lot like the rest of the device: a good idea on paper.
