It applies processing according to the settings in place, sharpness, brightness, etc. These are applied to all signals, and any incoming signal which is at a different aspect ratio than the selected output resolution is also scaled (and deinterlaced if needed) before output. I have the processing set to off, which is the only way for signals to pass through unaltered. It also converts everything between analog video and HDMI. It does not convert protected HDMI streams to analog output other than at 480i though.

BB