Instead of trying to smooth the entire image, it reduces blocking artifacts by finding plausible coefficients that reduce discontinuities at block boundaries (jpegs are encoded as a series of 8x8 blocks). "jpeg2png gives best results for pictures that should never be saved as JPEG", but knusperli works well on normal photographic content, since it only tries to remove blocking artifacts.
> A JPEG encoder quantizes DCT coefficients by rounding coefficients to the nearest multiple of the elements of the quantization matrix. For every coefficient, there is an interval of values that would round to the same multiple. A traditional decoder uses the center of this interval to reconstruct the image. Knusperli instead chooses the value in the interval that reduces discontinuities at block boundaries. The coefficients that Knusperli uses, would have rounded to the same values that are stored in the JPEG image.