Sometimes you may have an untagged file of unknown origin and it can't be identified out of it's file name or folder name.
The Identify File function gets the information from the internet.
It first takes a Fingerprint of the first 135 seconds of the file and does a lookup for the MusicBrainz PUID. Every single track at MusicBrainz has a unique id, the PUID, which is used to identify the track.
MusicBrainz returns various information about the track, including an Amazon ID of the album. This id is used to retrieve the Album Cover Art this track belongs to.
When the information is found, the Status Column and the tags in the grid are updated.