The tracing process behind this tool follows roughly the same two-step approach that vectorization algorithms have used since the technique was first developed for scanning line drawings decades ago. The first step is color quantization, where the tool looks at every pixel in your PNG and groups similar colors together into a smaller set of distinct color buckets. A photo might contain tens of thousands of subtly different shades; a logo usually has somewhere between two and a dozen genuinely distinct colors once you quantize it. The detail level setting controls how aggressive this grouping is. Simple merges aggressively into very few buckets. Detailed keeps more distinctions, which is more accurate to subtle color variation but produces more shapes in the output.
The second step is edge detection and path tracing, where the tool finds the boundaries between each color region and describes those boundaries as mathematical curves rather than a grid of pixels. This is the step that actually makes the image scalable. A pixel grid has a fixed resolution and gets blurry when enlarged beyond its native size. A curve described mathematically, like a Bezier path, can be rendered at any size with perfectly sharp edges because the math defining the curve doesn't change regardless of how large or small you render it. This is the entire value proposition of SVG output: the file describes shapes, not pixels.
Why a traced photo produces a worse, larger file than the original
The reason photographs trace so badly comes directly from these two steps. Color quantization on a photograph either loses an enormous amount of visual information by reducing it to a handful of colors, which makes the image look posterized and wrong, or it has to keep a large number of distinct color regions to stay accurate, which means the edge detection step then has to trace boundaries between thousands of tiny, irregular regions instead of a handful of clean shapes. Each traced region becomes its own path in the SVG file, and a photograph with complex texture and gradients can produce tens of thousands of individual paths. The resulting SVG file is often considerably larger than the original PNG, takes noticeably longer to render in a browser, and looks worse because the curve-fitting introduces its own artifacts on top of whatever was lost in quantization.
Preparing a PNG for better tracing results
If your logo or icon isn't tracing as cleanly as you'd like, the source image is usually the place to look first rather than adjusting the detail level repeatedly. A PNG with anti-aliased edges, the soft pixel blending most image editors apply automatically around shapes to avoid jagged stair-stepping, introduces a thin band of intermediate colors at every edge. The tracer has to decide what to do with that band, which can produce slightly fuzzy or imprecise edges in the traced output compared to a source image with hard, non-anti-aliased boundaries. If you have access to the original design file rather than just an exported PNG, exporting again at a larger size with crisp edges and minimal anti-aliasing, then tracing that, typically produces a cleaner result than tracing a small, heavily anti-aliased PNG. For logos that already exist only as a low-resolution PNG, the resize tool can upscale it first, though tracing still works best from a source that was clean to begin with rather than one that's been artificially enlarged.