what does a power conditioner really do?

Unless your mains is awful then don't bother as there is always an element of compression when using a conditioner.
If your mains is ok then choose a very high quality distribution block. 

Syntax said: It transforms cheap power into expensive power  .

Actually, it transforms expensive power into more expensive power. 

In theory, these devices are designed to remove RFI/EMI noise from one's system. Some products are better at this than others. Much will be determined upon your locale.

As with any audio product some are better than others(conditioners are no exception to this rule ) and a hierarchy is created. I can 2nd cousinbillyl's assessment of the BPT  balanced AC  transformers /conditioner. It is a superb device that improves sound quality across the board. I have 20 amp dedicated lines, the BPT is a step above the dedicated outlets. 
Charles, 

It all has to do with the quality of the AC coming into your house from the power grid. Depending on where you live, the power can be dirty, i.e., in a large city, unstable, prone to lightning strikes, or the best case scenario, a stable signal from the power company.

chayro gave good explanations of the different types of conditioner or reconditioner that would be needed.
When power is stable and does not need to be regenerated (active power conditioner), a passive conditioner can provide benefit. But, you get what you pay for.
A good passive's purpose is to lower the noise floor of the AC coming in thru your wall receptacle. It also removes RFI/EMI. The result is more detail, better separation of instruments, basically better signal to noise ratio.

The problem with power conditioners is to find one that does not restrict the dynamics of your components. Most units will state "Non-Current Limiting," which means they will let the signal flow unrestricted and not colour the sound. This may be true of low-current components, such as CDPs, DAC, preamps, but IMO, all passives affect the sonics of amplifiers.
Most members using conditioning will only have low-draw components plugged into the device and the amp plugged directly into the wall or a very high-end balanced power device.

A good passive PC can range from about $300 to $700, while active units can cost into the thousands.