The material is fed into a hopper, mechanically separated into loose fibers, and delivered through a hose to the cavity. As it lands it creates tiny pockets of trapped air, and because air is a poor conductor of heat when it cannot move, those pockets are what slow thermal transfer. The advantage over pre-cut material is coverage. Loose fill flows around wiring, plumbing, framing irregularities and truss members, filling the awkward corners of an attic that a batt has to be cut around.
We use high-quality cellulose or fiberglass materials depending on the application, and modern loose fill comes with fire-resistant and mold-resistant options.