I experimented with this a bit - the "organized by conversation" appears to be "organize by 'references' AND 'subject' using the logical "AND" operator meaning both fields have to be equal and then the messages are grouped together.
"References" appear to be unique ID numbers created for each message and appended to the previous referenced (replied to?) messages for each thread.
You can see the list of referenced messages on a grouping by pressing "cmd-shift-h" or "view, message, headers" when a message is selected.
I liked the old way myself - I have an automated hourly e-mail sent (from a weather station) that I liked having grouped together...