It generates the code to load the objects, textures and lightmapping that make up the level. It also loads the players start position and gives you basic movement controls, simple gravity and collision
You can pretty much create your level in FPSC, convert it, run the code generated and be able to walk around your level. Anything else you need to add in yourself. However when AppGameKit gets animation commands loading dynamic entities will hopefully be added.
Heres a video of a very simple lightmapped level:
http://www.youtube.com/watch?feature=player_embedded&v=J00Pd7rIXhg
Wizzkid