It doesn't and it doesn't matter. I doubt good business will sink or swim based on "demo day" type expositions and vice versa for a bad business. Eventually the "market" will figure it out... It may take some time for that to happen however.
Unfortunately, start-ups don't function like normal businesses. If they can't get their name out there sufficiently, they'll die before the market takes its sweet time "figuring it out."
Demo-day results are suggestive, just like SAT scores. It's a measure of the founder's ability to sell (which is arguably the most important task for a CEO).
It doesn't matter if it's a great product. Amazing products have been created and destroyed when the founders couldn't market it to an audience.