PDF is the format you send a document in when you don't want the recipient to change it, or when you don't know which program they will open it with. A .docx opened on a different computer can change its layout; a PDF can't.
The tool reads the Word document, rebuilds its layout and turns it into A4 pages. Headings, paragraphs, lists, tables and images are rendered visually.
An honest caveat: in the PDF produced, the text is not selectable, because the pages are rendered as graphics. The file is valid, printable and looks identical to the original, but you can't search inside it. If you need searchable text, Word's own Save as PDF does a better job.