I read your words, parse them into ideas and concepts, and then reflect on those concepts, draw upon my existing knowledge and beliefs to form my own ideas and concepts in my head, and then translate those ideas and concepts into words which I type out.

ChatGPT sucks in 2000 characters from the conversation, runs it through a bunch of mathmatical statements that have been tuned to predict what the next response would be, and spits out a bunch more characters.

A good way to think of it is how a non-lucid dream works. Your subconscious is predictively generating a world and the events that occur in that world, and it is able to somewhat convincingly mirror what is expected to happen in that world most of the time. But your subconscious is not actually simulating a world, there are not actual forces or mathematical cause and effect dictating what happens in your dream, it's just guess work that generally accurately mimics what you would expect, as long as you don't think about it too hard.

*disclaimer: I have no idea how similar dream worlds actually is to chatGPT, this is more of an analogy than a direct comparison.