The lasso tool operates on the active layer of an image, and is used by clicking and dragging to trace the edges of a selection.
The area enclosed by the cursor path will remain selected and open to various transform operators (shift, scale, cut, copy, and paste, for example) until elsewhere in the image is clicked.
The edges of the mask are defined by user input: the path of the cursor while the button is held down.
This creates the impression that the tool has sliced out a piece of the original image for selective transforms and edits.
"Empty" pixels are handled in one of two ways depending on whether or not the imaging software supports alpha compositing.