From my understanding of how this works:
1) Original X-Box games are on a disc with a filesystem that PCs cannot read natively
2) We use the OS on the X-Box, coupled with FTP to get the original files onto a PC hard drive.
3) We burn the files onto a DVD-R (or CD-RW, etc.). This is accomplished in more than one way:
a) Burn the files as a UDF disc (readable in X-Box and Windows - and Mac I assume)
b) Burn an xISO, or similar program, image containing the files (resulting in a disc that has the original X-Box filesystem)
Doing it the first way means that you can read the files on your PC, using the second method means you wouldn't be able to. What you can and can't do with the burned disc depends on how it was created.
People have differing opinions on which method to use. UDF burnings, from what I gather, tend to take a bit longer to load and have a bit more disc thrashing involved. Also, people claim that the games may not load reliably all the time. ISO images have the added step of creating the image from the files, which may take up more space/time than people have.