It tries to verify that each bibliography entry is findable using scholarly indexes and web searches, then marks entries as verified, possible or 'not found'.
Some items are genuinely hard to validate automatically. Since original scholarly publishers' sources cannot be accessed directly, Biblbibuddy uses metadata clues in scholarly citation databases and web search snippets to find the best match it can. Sometimes a snippet won't contain the year (or reference a later year's publication, or have a truncated title or be missing author names). Corporate and organisational sources also often don't have all the usual bibliographic metadata that academic works do; you will see these show up in amber with a lower confidence score even when the match looks like a slam dunk to you.
In 99% of cases the report will link to the matching source, with authoritative publishers, universities and major organisations ranked higher. In some cases there is no direct link available in any search results, and the best match is a second-hand citation in another work. This is normally enough to validate the reference, but if you need to be 100% sure you may need to track down the original source manually.