It is a pulse oximeter and presents the amount of oxygen being carried in the blood as a percentage (oxygen saturation) using a red light shone through the finger. It also provides an indication of pulse rate.
It is not infallible, for example a person that has been exposed to Carbon Monoxide may show 100% saturation, but the device cannot distinguish between oxyhaemoglobin (good) or carboxyhaemoglobin (bad) as they are both bright red.
Under normal circumstances saturations should be greater than 95%, any less than this supplemental oxygen should be used. However, if a person has COPD and has reverted to a different respiration driving mechanism which depends on the level of oxygen rather than the level of carbon dioxide in the blood, oxygen saturations should be between 88% and 92%, any higher and the person's respiration rate may fall and eventually fail completely.