it works in the reverse of a thermocouple. instead of using a temperature difference to create a voltage (how a temperature sensor works), it uses a voltage to create a temperature difference. depending on how much current it draws (always a lot, you need a good PS), one side of the plate gets really cold, and the other gets really hot. the difference between the two sides can be as much as 140 degrees F.
Really hardcore overclockers use them, because its among the most powerful active cooling solutions. I'd never do it; there's a lot of risks involved. The part that gets hot gets REALLY hot, and should the element ever fail, you'll be left with a plate of metal on your cpu which, when the temperatures even out (rather quickly), is pretty hot and doesn't radiate heat. Also, the cold part gets really cold. You need to watch out for condensation, depending on the humidity where the computer is.
all in all, unless you're very interested in squeezing all the performance you can out of your cpu, stick to a good heatsink/fan combo and you're life will be less worrisome.