Clicking the widget does the same thing as going into Settings -> Wireless and Networks -> Mobile Networks and changing the setting yourself. See screenshots of the setting from various versions of android below.
For those of us on a limited data plan, a widget like this is very convenient for turning the data connection on and off.
The data network setting will be changed regardless of the presence of a wifi signal. If the phone is currently on wifi, clicking the widget icon will still enable/disable the data network but this does not affect the use of the wifi connection.
Note: The widget does not actively monitor the data network setting (to use less resources), so if the data network option is changed manually or by some other means, the widget icon may not be accurate (e.g. the widget shows the green 'enabled' arrows but the data network is actually disabled). If this is ever the case, the next time you click the widget icon it will toggle the setting and update the icon appropriately.
Tags: enable network.
Version 1.1 update: Fixed the widget crashing for some users (specifically people using PDroid privacy programs or roms with PDroid included).