It allows the Mac to use far less RAM to display overlapping windows, and doesn't require any extra hardware. Individual regions are refreshed independently of the rest of the screen, with occlusion, updates, and clipping managed automatically,
He said they drew a lot of inspiration from Woz on the hardware side. Woz was well known for employing lots of little hacks to make things more efficient, and the Macintosh team had to apply the same approach to software.
My guess is it asks each application that overlapped those areas to redraw only those areas (in case the app is able to be smart about redrawing incrementally), and also clips the following redraw so that any draw operations issued by the app can be "culled". If an app isn't smart and just redraws everything, the clipping can still eliminate a lot of the draw calls.