The pi is either emitting a mouse move or detecting one on the physical device and measuring the time that passes until the photo diode/resistor (not an led) is detecting the cursor to move away.
It's essentially the same setup you would use to detect input to photon latency if you don't have a high speed camera.
Edit: Ah no there's another setup with a pi pico in there...
Yeah it's binding and LED Lighting up to a button press to have two visual indicators (LED and Cursor Reaction) you can measure using a high speed camera. Them only having a 90fps phone camera makes it means the measurements are only in 11ms increments though.