Salt water system for pool

I have a new in-ground pool with a salt sanitation system rather than chlorine. I am slightly mystified by how it works - can somebody explain it simply, but in detail as to how this thing operates? I understand about salt dissociating into Sodium & Chlorine ions, but what are the details? There is also a setting for 20%, 40%, 60%, 80%, 100% - what does this do? I also have an indicator that tells me when to add salt. Does this work by checking resistivity, or something else?