Here's what my editor at Flux said after investigating it:

Here’s how it works: if you buy an ebook on your Kindle or Nook, you have the ability to lend it out to anyone else with a Kindle or Nook (Kindles lend to Kindles, Nooks to Nooks, etc.). This website connects ebook owners with others who want to borrow ebooks. So, instead of just borrowing from a friend, you can borrow even though you don’t know the person. All they do is match lenders and borrowers together. (They’re like a dating service.) The actual lending happens through Amazon, Barnes and Noble, or wherever the ebook was originally purchased, and that’s completely legit.