I'm guessing but the unit will probably just sense signal strength of the transponder over a given time and calculate position and direction relative to your aircraft by some clever maths within the unit. In short if the transmitting transponder closes in on you on a reciprocal course the signal strength of the transmission received will increase at a linear rate. if its offset to one side or the other it will plot a non linear strength v time graph.
Another guess would be that the azimuth data is simply done by taking the altitude data from the recived signal and cross referencing it to the altitude encoder in the device. It talks in the instructions of leaving the device to stabalise for upto 5 minutes for altitude after powering up.
The problem I see (if thats the method used) is how to differentiate the position of several common transponders on say 7000.
To gauge distance you would need to know the gain of the aerial, which is easy with its own antenna, but using a third party DME or transponder aerial?
My thoughts are that the unit has too many varibles in terms of installation to provide meaningful warnings that could be regarded with reliability.
The old saying about if its cheap and it looks to good to be true comes to mind. I guess in real practical terms it may have the same value as a graphic equaliser display on a 1980's stereo.