It tries to guess which periods indicate end-of-sentence (based on whether the next letter is capitalized) and will add additional horizontal space accordingly, unless you tell it not to by declaring your document uses “French Spacing”.
(Edit: and my memory may be serving me incorrectly here, but I recall 20 years ago having a support package that also detected double-space in the source as another indicator of end-of-sentence, but that was probably a non standard extension.)