It's a little blade that's on the side of the tuner post. When you tune up and the post rotates, the end of the string is forced past that blade so the excess is cut off.

They work nicely but they feel very stiff with the thicker strings and they can only handle something like up to .52. They claim they can be used with thicker strings than that but I've read in a few places that using any thicker than .52 means you'll blunt the blade edge and you'll have to use really excessive force to get it to cut.