What, exactly, does Private Browsing do?

I realize it what is listed in the box that opens when I turn the feature on, but what does it actually do?

Here is why I ask: I have never bothered with it on my desktop mac since no one else has access to it. Today when I upgraded to beta 4.0, there were all my most visited sites as favorite websites on the welcome screen.
But I also have a notebook I take on the road and I have always turned on Private Browsing on that machine. When I upgraded Safari on that machine there were all the sites I had visited (different from those on my home machine) despite the fact that I always turned on Private Browsing when I launched Safari. There should be no sites listed because there should be no history and I have no bookmarks on that notebook. So obviously, some kind of search history is saved despite the fact it isn't shown under History. Obviously it is saved for months. Obviously, there is really nothing private about it. If this data had actually been sensitive, then anyone with access to my computer could have checked it by launching Safari; it would have been on the splash page.

Yes, I am aware that I can just clear these favorite sites, but the fact that they even appeared as favorite sites means the Private Browsing feature isn't really doing what it says.