It works like linseed oil (I suspect that it may be very similar). The linseed oil will coat the inside and dry, waterproof. If there's rust in there (and there most certainly is, unless you live in a very dry climate) the coating will stick it down, and keep water from making more.
But still, don't forget to pull the bottom bracket and drain the bike after a long wet ride (unless you have some of those racy cutout bottom bracket holes). I pulled the bottom bracket out of a friend's eisentraut once and found like a quart of water in the tubes, after an all day slogathon.