It works because %path% is a short form for %Variable%Path%, which is what you really should use (I probably should not have allowed the short form of referencing variables).
The For Each action will iterate over the Finder’s selection, each time setting the Path variable (because that is what is configured at the top of the action) to the path of the selected file. With the Path variable set, Keyboard Maestro will then execute the Move action, which will move the selected file to the specified folder. Then the For Each action will continue with the second selected file, setting the Path variable, and so on.
So replace the first line in the Move action with “%Variable%Path%” and you will be safer in the future, and it will be easier to understand.