The way it works, is, that, based on depth, it will spread individual pixels away from each other. An easy way to imagine this is to look at your hand up close. Ignore how the background blurs, but focus on the double image that results. It does this, at a pixel level, spreading pixels around randomly. Sadly, it looks... considerably bad, as there is no filtering, or blurring as such.
[EDIT] Depth of Field has been fixed as of Version 2.0