It reads the URL you're on, then uses the freely available hacker news and reddit API's to search for matching submissions and displays them in the corner of the screen.
No, this extension is entirely distributed (from my veiwpoint), once you install it, you're connecting directly to Hacker News and Reddit, nothing is tracked by a 3rd party (including me). Also view the privacy policy here: /privacy_policy.html
Well you can view source code here: https://github.com/benwinding/newsit, builds are reproducible and you can verify that for your self.
Newsit comes from "Hacker News" and "Reddit" together makes "Newsit"... seemed cute at the time.