It's a planetary geartrain, with electric motors on the outer and inner, and the gas on the middle. If the electric is _completely_ dead, the gas will just spin without driving the wheels at all. There is no first gear, the mechanical advantage and “clutching” all comes from the inner electrical motor driving the sun gear, while the electric boost/drive comes from the electric motor on the drift shaft (which is on the outermost gear of the planetary set).

There's a video linked elsewhere in this thread that explains how the toyota system works, it's worth watching as it clears up several common misconceptions about the system.