The word "greylisting" comes from the words whitelist and blacklist: a whitelist is a list of people allowed to send mail because we know that they are not spammers; a blacklist is the opposite; and the greylist is people we're not sure about.
The process of greylisting is nothing more than a simple delay. The first time a mail server that Skeena.net has never seen before tries to send mail to you, it is told to try again later. (And Skeena.net adds it to the greylist.)
This works very well against spammers, because of their nature. Spammers are very much fly-by-night creatures: the entire Internet is out to get them, so they move around quickly and try not to be sending mail from any one computer for too long, lest they be noticed. Consequently, they write their mail-sending software to do very fast bursts, often not stopping for error messages at all and just sending as many one-off mailings as possible in the time they have.
That means that when "later" rolls around, the spammer has already moved on — and it doesn't do him or her much good to try sending to you again from the new spot, because Skeena.net will just greylist it again.
Legitimate mail servers are a different story. In the olden days of the Internet, mail delivery was not very reliable and protocols were written with that in mind. Thus, real mail servers will know what to do when Skeena.net tells them to try again later and the mail will get through after an hour or so. (The delay is actually only five minutes, but it is up to the other server to decide when it wants to try again, and many wait an hour.)
After a few successful mails from a given server that server gets whitelisted and further mails from it are not delayed, so in general, you will barely notice that greylisting is being done (except for the almost total lack of spam in your inbox).
Occasionally, though, greylisting does cause problems when the remote mail server isn't set up properly and doesn't try again. If that happens, the person who tried to send mail to you will get returned mail with an error explaining the problem. (The error code and message the Skeena.net server uses when greylisting contains the URL to a help page about it.)
If that happens, Skeena.net can add the misbehaving server to the "do not greylist" list so that mail from it can get through — contact Felix if this needs to be done.
If you're interested, the original greylisting website is at http://projects.puremagic.com/greylisting/.