It counts the total words on the page, then measures how often each notable term appears and expresses that as a percentage of the total — the density. Each keyword is flagged Low, Optimal, or High against a threshold that scales with how long the page's content actually is.
How to use the results
Treat "Low" as a hint the page may be under-covering a topic it's trying to rank for, not a hard rule to fix by repeating the word more. Treat "High" as a hint to diversify your phrasing — use synonyms and related terms instead of the same exact phrase — rather than deleting content.