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Neither the article nor the README explains how it works.

How does it work? Which WASM euntime does it use? Does it use a Python jnterpreter compiled to WASM?

There's a link to the author's work here:

(From the article)

Appears to be CPython running inside of wasmtime

yep, and to be specific, it leverages the WASM Component Model and uses componentize-py to bundle the user's script

See the linked project at the end: https://github.com/mavdol/capsule