What does Rails 3's Bundler "bundle install --deployment" exactly do?

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The things described in the formal documentation are a bit complicated.

Does it merely add the following line to .bundle/config

BUNDLE_PATH: vendor/bundle

and then perform a bundle install, and that's it? (install will then install all the gems into vendor/bundle)

Then when the application runs, it will look for the gems in this path specified in .bundle/config, and that's it?

Update: if I use Mercurial (similar to Git) to keep track of files in project, then after doing the bundle install --deployment, the only changes are a lot of files added to vendor/bundle, and 2 lines added to .bundle/config:

BUNDLE_FROZEN: "1"
BUNDLE_PATH: vendor/bundle
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