It has a little see-saw arrangement. As it's "little bucket" on each side of the see-saw gets full, it drops and empties, then the other side fills up. Each time it does this, it toggles a switch which counts up how much rain has come through. I didn't bother to work out how much "1 click" is worth in millimetres of rain, but it would be easy enough to test.
There are two holes underneath where it empties each side of the see-saw. ie. it never fills up.
ps. for a chuckle, my "weather display" trial website is here:
http://turbopascale.sytes.net
Just turned on all sorts of options - possibly to many - it's one BUSY little website!!