What it does is convert from a structured PDF to a reflowable MOBI, which usually works just like a standard MOBI This can work ok for "simple" PDFs, but sometimes does not work well at all. PDFs with images generally do worse than text PDFs. Some PDFs get converted to a set of images (scans of the pages) in a MOBI container. These can be annotated at the page level but the font can't be resized (since the content is images).
If you have a KDX I don't think the e-mail route is available to you (the PDF is passed through "as is"). However, if you have a Windows PC, Windows MobiPocket Reader imports PDF and exports MOBI (in My Documents\My eBooks). Amazon is thought to use a very similar program for its PDF to AZW (MOBI) conversion, although Amazon may be using an enhanced version of the program.
Last edited by wallcraft; 06-23-2009 at 08:35 PM.