Lag fixing using OCLF - could it do any harm?

I am wondering if the lag fix proposed by xda-developers could harm the device in anyway. Quote from Google Code "Original use was for 'One Click Lag Fix' for the Samsung Galaxy S series, to create a loopback EXT2 device on top of Samsung's RFS in order to improve response time for applications." Link to forum page about this: here . How does it work exactly? What does "create loopback EXT2" mean? I know the forum post clearly states it's been tested on a huge number of devices and it's working, but I want to understand what it does exactly and if there is any compromise by installing it? Thank you.