It predicts the next word, over and over, from everything it has read. It is not looking anything up, which is why it can be fluent and completely wrong at the same time.
The drawing that proves the sentence above. It is the same card that is in the book.
Think of it as
someone finishing your sentences, very fast.
For example
It writes a beautiful paragraph about your town, and invents a street that has never existed. It was never looking anything up.
This is one card out of 275.
The hundred words you meet most are free — the whole set, animated, in one file that works with no internet.
Volume 1 has all 275 in fifteen chapters, with Staying Safe the largest chapter on purpose.