For detailed info please go to wikipedia...http://en.wikipedia.org/wiki/Wonder_Pot#cite_note-hole-1
Here is a short explanation copied from Wikipedia:
How it works
The Wonder Pot is effective at baking on top of the stove for three reasons: its aluminium material, its hole, and the metal disc which separates it from the flame. The aluminium material allows heat to spread uniformly. The center hole of the pot focuses the flame and creates heat dispersion around the inside of the cake. The metal disc lifts the pot off the fire, reducing and focusing the flame. Baking in the Wonder Pot without the metal disc will produce a cake that is dry on the bottom and thick and wobbly in the center. The metal disc is sold in different thicknesses and diameters to accommodate different baking times and larger flames. The lid of the Wonder Pot is perforated with small holes to release steam. Baking time in a Wonder Pot varies from 40 to 50 minutes.
The Wonder Pot produces high and airy cakes. In addition to baking, the Wonder Pot is an effective medium for cooking vegetables, legumes, and rice in layers. It can also be used to cook kugels, casseroles, pasta dishes, meat, and chicken.
There you have it! As said...I love the thing :)