It looks like it injects its own version of the engine.dll file into game memory. It's basically "Replacing" the one L4D reads from, but only in active memory, not a game file.
As long as Valve don't change the meaning of how you get VAC banned (ie, modified game files), then at least legally, this is valid.
How ever I won't be using it, it's possible Valve want to be tight-assed and will ban people. Also another thing, it could be possible to still be banned, as the engine.dll could be a modified version of the original (Hex edited version).
I may not be right, I'm not going to spend time researching, but just a friendly heads up =). If anything confirm with Valve.
Posted on Friday, 1st April 2011