This application was designed to restore the ability to put the phone in Silent/Vibrate mode from the Volume Rocker. Froyo removed this ability for a lot of phones and this application was made to simply get it back.
There are two modes of operation:
Manual: When the phone goes to Vibrate / Silent mode the user is presented with a graphic that allows them to put the phone in either mode. These buttons are displayed for 2 seconds.
Automatic: This is an experimental mode to restore the old functionality back. It automatically switches between Silent/Vibrate/Normal. Because of the way Froyo changes these modes, the user will need to push the volume up to get back to "Normal" mode before switching back to Vibrate/Silent.
In short, it is possible to be on Vibrate mode and press volume down and the phone doesn't go into Silent mode. The user would need to press the volume up to get back to Normal mode and then hit the volume down and Silent mode should appear. It is the way the OS changes modes is the problem and not something the application is doing.
