The captcha that you see here is a very simple one, coded in just one hour and only 20 lines of code. I developped this to keep computers out of the keyvault.org system. As keyvault.org is not yet active, it's just a small demonstration.
It works quite simple. The image is called with a passphrase. The image is then generated using this passphrase. The text you'll see is a mathematical deformation of the passphrase. As both the script that generates the image as well as the script that needs to verify the correct input know this mathematical deformation, they can verify the input of the user.
Everything you ever wanted to know about captcha's can be found at http://www.captcha.net/