I dont get. If it has a fixed length, choosing the lags and the mod over and over again will give the same number, no?
It all depends on the seed. Most random number generators do give the same sequence of numbers for a fixed seed value.
It's random in the same way that any pseudorandom number generator is--which is to say, not at all.
However, lagged fibonacci (and all linear feedback shift register PRNGs) improve on a basic linear congruential generator by increasing the state size. That is, the next value depends on several former values, rather than just the immediate previous one. Combined with a decent seed you should be able to get fairly decent results.
Edit:
From your post, it isn't clear that you understand that the underlying state is stored in a shift register, meaning that it isn't static but updated (by shifting each value one place to the left, dropping the leftmost value, and appending the most recent value on the right side) after each draw. In this way, drawing the same number over & over again is avoided (for most seed values, at least).
It's not random, its pseudorandom
From this http://en.wikipedia.org/wiki/Lagged_Fibonacci_generator
Lagged Fibonacci generators have a maximum period of (2^k - 1)*2^(M-1) if addition or subtraction is used, and (2^k-1) if exclusive-or operations are used to combine the previous values. If, on the other hand, multiplication is used, the maximum period is (2^k - 1)*2^(M-3), or 1/4 of period of the additive case.
So, given a certain seed value, the sequence of output values is predictable and repeatable, and it has a cycle. It will repeat if you wait long enough - but the cycle is quite large.
For an observer that doesn't know the seed value, the sequence appears to be quite random so it can be useful as a source of "randomness" for simulations and other situations where true randomness isn't required.
Random number generators are often one-to-one functions where for every input there is a constant output. To make it "random" you have to feed it a seed (which must be "random"), like the system time or the values of computer memory locations, for example.
If you're wondering why you don't just straight up use the seed (the time, etc.), it's because the time is sequential (1,2,3,4) whereas most pseudorandom number generators spit out numbers that appear random (8, 27, 13, 1). That way if you're generating pseudorandom numbers in a loop (which happens very fast), you're not just getting {1,2,3,4}...