It shows two words. One of them the computer already knows, the other, it doesn't. It assumes that if you get the known one right, that you must know the other.
You don't know which of the two is already known so you, theoretically can't trick it. Additionally, it will replay a word with multiple people to get independent confirmation before sending it back to the source (newspaper company, book scanning group) as a valid answer.
But if a computer can't read such a
CAPTCHA, how does the system know the
correct answer to the puzzle? Here's
how: Each new word that cannot be read
correctly by OCR is given to a user in
conjunction with another word for
which the answer is already known. The
user is then asked to read both words.
If they solve the one for which the
answer is known, the system assumes
their answer is correct for the new
one. The system then gives the new
image to a number of other people to
determine, with higher confidence,
whether the original answer was
correct.
http://recaptcha.net/learnmore.html