A computer chip is embedded in a payWave card, and when the card is "waved" in front of the secure reader, payment information is processed at the point of sale. The card doesn't work unless it's within 1-2 inches of the reader. The data is processed through the same payment system that handles magnetic-stripe cards.
Visa Card promotes this card as being more secure than the magnetic-stripe cards. Why? Because the card never leaves your hands. But Visa also made sure there was a backup plan. If the secured reader can't scan your card for some reason, you can use the payWave card in the same way you use your traditional cards. You can swipe it and be on your way.