1. The largest power of 2 that divides x is just 2^(number of trailing zeros in x)
2. Crucial observation: -x == ~x + 1
3. ~x flips all the bits of x bits, so none of the bits of ~x match those of x. (i.e. (x & ~x) == 0)
4. When you do +1, all the trailing 1's flip AGAIN, becoming zero like they were in x. The next highest 0 (say it was the n'th) also flips, becoming 1... like it was in x.
5. Crucial observation: The n'th 0 did NOT match the corresponding bit in x prior to the increment, therefore it MUST match after the increment. All higher bits stay as-is.
6. This leaves only the n'th bits matching in x and ~x + 1, isolating the highest power-of-2 divisor of x when you AND them.