It uses the Virtual 8086 Mode of the 386. The Intel 80386 Reference Programmer's Manual explains that well [1], I think.
So, in this case, the first mega of RAM, containing MS-DOS and the BIOS is virtualized in a VM86 box while the CPU is running in protected mode, permitting the host OS to cohabit with a protected-mode OS.
It is in fact, a VM86 monitor. Another example of such a program is EMM386 or similar like Jemm386 whose source code is available [2].
[1] https://pdos.csail.mit.edu/6.828/2018/readings/i386/c15.htm
[2] https://github.com/Baron-von-Riedesel/Jemm
edit: the link [1] was wrong