I don't know exactly the details of HOW it works but when you open the cover, the Kindle comes on and when you close the cover, it goes off. Very simple. I love this and it works perfectly! I recommend this Kindle cover.
When you open the cover your Kindle will automatically turn on, or will go to your security code screen (depends on how have your Kindle set up). When you close your case it will automatically shut your Kindle off. I love this feature! It makes so much easier to access or shut off without looking around for the power button!