No, it doesn't hack the iPhone and install an application. It writes a password protected web page to the file system on the iPhone, and you access it through the browser. So, the URL you look at starts with "file:///", but it acts just like a web page on the phone.
I haven't tried many of the other similar applications, but it seems to have a pretty killer combination of password storage, strong generation, and synching. And, they are beta-ing a service to securely keep passwords on their site so that you can access them across machines. I'll have to see what that looks like when it appears, but I'm pretty happy even without that.