How does libunix work?

When linking with libunix the binary can handle paths differently. How does it work internally?

It sets a variable into newlib to true that is tested at runtime and change the path handling

If it's enabled it does some string replacements in the path before calling the AmigaOS functions locking or opening a file or directory, for example "/xyz/" is replaced by "xyz:", "./" removed, "../" replaced by "/", etc., and probably the other way round when getting a file or dir name.
There are some other differences enabled with as well I don't remember, for example it may support reading directories with file I/O functions like Unix does.