What exactly does this do, and what are the benefits of it?

 

allows you to take off emissions crap for LT headers without the need for computer tuning.. my reasoning behind it. also editors or tuning programs are relatively cheap compared to the big bucks you spend for OBD2 tuners. i actually have an OBD1 for sale now for a 6 spd car if you are interested.

 

It converts your car to 94-95 style computer. (powertrain control module)
The OBDI is more forgiving as far as mods installed on your car, while the OBDII keeps a better watch having literally tons of all sorts of codes to set if it detects something it doesn't like. (not saying that the OBDI doesn't have enough codes, but the OBDII has more)

OBDI tuning is cheaper and more available to the regular user while the OBDII programming software is very expensive. ($500+ for a single user license)

With the OBDI you also don't need rear o2 sensors and if you install long tube headers you won't need simulators, you can just leave the plugs disconnected.

To convert to OBDI, an OBDI PCM is needed as well as an OBDI knock sensor swap. Or alternatively, the internal resistance can be changed to accomodate the OBDII sensor.