Google probably does a much simpler thing. Simply finds the web pages
in which the entered words occur together (or group of web pages in
which some of the entered ones occur together) and gets the other words
that come together with the entered ones in these webpages. Obviously
you need further filtering (as done in web-searching). But this seems
to me the basic concept.
I had replied to another message (see
http://groups.google.co.in/group/google.public.labs.sets/msg/cd5b0b34825a8570?hl=en&
http://groups.google.co.in/group/google.public.labs.sets/msg/c617ebd27d63baf6?hl=en&
)
I think Google sets works this way, also believe that Google Sets does
not work the way how Google Search and once Google Sets graduates from
the Labs; Google Search might follow Google Sets principles
Correct me if I am wrong!
-Vasantha