The purpose of the SDI is to replace dynamic generated components (eg. current time or foreign exchange rates) with server-side include tag (eg. SSI or ESI). Therefore the dispatcher is able to cache the whole page but dynamic components are generated and included with every request. Components to include are chosen in filter configuration using resourceType attribute.
When the filter intercepts request for a component with given resourceType, it'll return a server-side include tag (eg. <!--#include virtual="/path/to/resource" --> for Apache server). However the path is extended by new selector (nocache by default). This is required because filter has to know when to return actual content.
Components don't have to be modified in order to use this module (or even aware of its existence). It's servlet filter, installed as an OSGi bundle and it can be enabled, disabled or reconfigured without touching CQ installation.