It uses LDD’s ldraw.xml conversion file (up-to-date version included) to convert colours, ids, and positions/rotations. It converts LDD’s groups into LDraw subfiles. It also converts decorations (when possible/available in LDraw). And it converts flexible parts, they are exported as LSynth commands.
Download the bundled Zip file. Unpack it wherever you want. Open the file lxf2ldr.html in your favorite (and recent) browser. Then click the browsing files button and, once loaded and converted, links to downloadable MPD files will appear at the bottom.