It seems to use some algorithm to try to estimate what's a feature and what's noise, and adjust the scale of noise removal accordingly. The more noise, the larger the scale of the smoothing. Here's a render I did at super low quality (just 3 samples!) and way too much light. I hadn't meant to leave the denoise on, it was just a quick lighting test. But the effect is pretty interesting even if it isn't what I meant at all.... turned it into something like brushstrokes.

Since I'm posting that, here's something that came out how I intended, from the same set of models (by Nightshift3d):