Basically, you create a new search engine with it and then compare the results on Google.com with your own new Google CSE. If your site comes up high in the Google CSE and low in the Google web results, then maybe you have a penalty that does not impact the Google CSEs?
The thread has some people saying they rank perfectly fine in the Google CSEs but not well at all in the main Google.com search results.
Tedster said, "it seems clear that some ranking ranking changes are applied to the "raw" data at the very last instant." He added, "It's very interesting to me that sites seemed to be ranked without certain filters or without certain penalties on a CSE. It could be a good diagnostic tool."
Have you tried this? Does this work on sites with penalties?
Forum discussion at WebmasterWorld.