From the Help button on my Shredder window:
McAfee Shredder deletes (or shreds) items permanently from your computer's hard drive. Even when you manually delete files and folders, empty your Recycle Bin, or delete your Temporary Internet Files folder, you can still recover this information using computer forensic tools. As well, a deleted file can be recovered because some programs make temporary, hidden copies of open files. Shredder protects your privacy by safely and permanently deleting these unwanted files. It's important to remember that shredded files cannot be restored.
I would imagine the method it uses is a trade secret as we've never been told how it works.
Most similar applications replace the DATA with zero's in the one pass method then, I believe, blank that out in subsequent passes.