When I first I heard about the Paperwhite I thought it would be a built in book light but the light totally changes the way the page is displayed.
The only way I can explain it it's like a image layer. You have a white background hiding the eINK background. The Light setting is like a transparency setting, the lower you go the more transparent the whiteness becomes so you start to see the eINK background underneath. The only difference is instead of a image it's actually a light that illuminates so you can read in the dark and the brightness goes lower as you change the setting down. That is the only way I know how to explain this new amazing technology.
Unless you see one in person it's really hard to understand how it looks and works. Pictures and videos don't really capture it.