The script duplicates the images inside of a <canvas> tag, which goes exactly on top of the current image. It then uses the canvas to provide the blend-mode functionalities.
Normally (in Photoshop or GIMP), you would start with a base image, and then apply a second image to the base image with one of these overlay modes; usually a specially-constructed image designed to apply the effect to different degrees in different parts of the base image.
This plugin seems to be using the same image as the base and as the overlay, which... seems to be missing the point a little.
Here is the source: http://dl.dropbox.com/u/45557606/Envato/CodeCanyon/jQuery-Bl...