It does. Both this and the Spectra (SCART interface plus various other functions) ignore the output from the existing video system (ULA/gate array) and instead implement their own video system. Every time the processor writes to the screen memory area (which on the ZX Spectrum range is in the same area) they capture the data from the data bus on the edge-connector/expansion port. Hence they have the display data as digital information.
Using the digital display data, they can then process it however they like and hence can output new sharp video streams. This is a much better method than sampling the original output from the ULA, or worse, the composite video signal.
Mark