It uses the acceleration (Gs) along with the time to calculate the distance/speeds. The G meter is also very neat, calculated the Gs when braking, accelerating, left/right. It'd be very nice for the track, and viewing while driving. It would be nice if they could incorporate a digital speedometer using GPS though.
Hopefully some updates come out soon incorporating more things and making it more stable. It's a great app, but I would say it's not quite worth 13 dollars right now. Maybe 6 or 7.