It does a DNS lookup, advanced parsing (which can be hard [1]) and common typo-fixing suggestions.

Not a useless service, to be sure; you have to make your customers aware that their email is submitted to a third party for validation though. Usually people don't care all that much (and have that same emails addresses listed in public profiles), but a relevant bit of fine print should be there.

[1] http://www.codinghorror.com/blog/2005/02/regex-use-vs-regex-...