From Paterva Wiki
This transform verifies that an email address really exists. It's one of the more interesting transforms. It works as follows - as a start the transform finds the right MX (mail server) record for the domain. It then connects to port 25 (SMTP) of the host. The transforms starts the normal SMTP conversation - it issues a HELO (paterva.com) and a MAIL FROM (email@example.com) SMTP commands. Before testing for the supplied email address it issues a RCPT TO with an email address that does not exist (it tests for thisisreallynothere@domain). If the error message indicates that the address is not there the transform knows that it can test for the supplied email address. If no error is returned during this 'baseline' test the transform returns 'Inconclusive'.
The transform does not return new entities as a result - it returns the same entity but it adds a label to the supplied email address indicating if it could verify it. Note that not all mail servers allows you to verify addresses in this way. Because this transform transacts with the mail server (and this is not considered very passive) this transform contains a disclaimer that explains the situation.