What exactly does this do?
Well there's the GDEMU. This device replaces the original GD ROM on your Dreamcast (you will no longer be able to play disc games). After installing it, you can play Dreamcast ISO's off of an SD card. It's sort of the same idea as a flash cart, but for a disc based system. The GDEMU was the first SD card mod for the Dreamcast. The creator is now working on a similar mod for the Saturn called the Rhea.
Then there's the USB GD-ROM. This is a similar device for the Dreamcast, but it uses a USB stick instead of an SD card. This is made by the same creator as the USB adapter for the 3DO (which basically does the same thing for the 3DO).
Both devices remove the original GD ROM from the Dreamcast and both systems are plug and play (meaning no soldering skills are needed). Version 4 of the USB GD-ROM requires modification to the outer case for the USB stick to plug in. Version 5 of the USB GD-ROM and the GDEMU require no modification as the USB stick and SD card respectively plug in under the disc lid. The GDEMU is supposedly less user friendly, but I can't comment on that as I haven't used either.