Before you ask, no, this won't allow you to download XBLA games from the net, burn them, and play them for free—believe us we checked. But what this can do is let you burn games you already own onto the disk so people without Xbox 360 hard drives can play games without having to download them each time onto their memory cards.
So what you do, apparently, is first buy the XBLA game, then burn it onto a CD—presumably by downloading it—and then pop it into your drive and the game boots right up. If you didn't actually purchase the game first, all you get is a demo version.
XBLA From CDR/DVDR! [360 game saves]