They have some systems that suggest words, word combinations, adjacent terms, and such for domains / related domains. I suspect that by leveraging those existing systems they can relatively easily tell if the names you're entering are complete garbage or not (length, any dictionary terms, high value words, etc).
Then someone cobble together a tool that automatically queries words from a dictionary on godaddy, maybe with variations like numbers appended, "the" prefixed or hip things like turning -er into -r.
