It's basically good old fashioned supersampling anti-aliasing, where the 3D scene is rendered at a higher resolution than what the monitor is set to. The 'factors' setting controls the relative scale of the rendered image to the display one (e.g. 2.25x with a 1920 x 1080 monitor means it's rendering at 2880 x 1620); the smoothness setting controls how the higher resolution picture is scaled back down to monitor resolution (it looks like it's adjusting either the number of samples taken and/or the amount that each sample contributes to the final blend, or may be even just the value of the standard deviation used in the Gaussian filter).
For older games or those that aren't graphically demanding (either because one's graphics card is really powerful or the game itself doesn't use complex graphics), it's a great way of getting better visuals. There isn't one setting that suits every game and everyone's tastes, so it can always be improved by tweaking the two settings. In the Program Settings tab in the Nvidia Control Panel, you can set it up differently for each game you want to use it in.