In many cases returned packages were simply destroyed. This is also true for some other online retailers though. There are infamous videos of employees chucking various expensive items into something looking like an industrial woodchipper. Some brands explicitly don't want used/opened items to be resold because it drives down the demand/price for their goods.
At least in Germany at least some returned items seem to be refurbished though. This would explain some reviews I've been seeing of people complaining about the "new" product they ordered having clearly been opened/touched before or missing small parts like screws. I've also heard that any item that doesn't arrive unopened in its original packaging is automatically considered "used" regardless of whether it was ever even removed from the packaging.
I don't trust Amazon but I believe them that they have reduced the amount of returns they destroy, even if only due to the public pressure.
They force the "associates" to unpack them and file lots of paper work. 30% suffer paper cuts. 20% are reported to CCP for complaining about "cheap Chinese crap" and of these many end up in Chinese gulags making the amazon Dick sign stickers against their will. And 5% must attend "Jeff and Andy"'s seminar on Capitalism with Amazonian Characteristics sessions. 5 individuals last year were hospitalized with PTSD after these sessions which included self-criticism of the workers and enumerating the exceptional leadership characteristics of Amazon's central committee.