A strong vortex accumulates on the topside of the airfoil, near the trailing edge. This stagnation causes drag. In my simplistic mind it looks like cavitation, but I am not a Comp fluid dynamics person. The winglets cause the stagnation to move out to the wingtips, reducing drag.
Sorry, I was speaking about the wake vortices. I misread the intent of his response
Winglets do not reduce the wake vortices the wing creates.