Silly me, I didn't see the discussion link until after I sent a PM. Oops!
Anyway, here's how I think it works:
The diode connected to the switch is the key. When the circuit to this diode is completed, the current flows across the diode and effectively bypasses the lamp, diode and capacitor due to the other diode being connected backwards in respect to the diode on the switch. Without the diode connected to the lamp, the light would glow dimly. With the diode blocking the other half of the AC waveform, the lamp will only see the 0.7V or so dropped across the diode, not nearly enough to light a 120V bulb.
The polarized cap is probably to prevent flicker. I don't think it would be wise to screw in a CFL into this contraption!
