Paste two versions and see what changed, line by line, with additions and removals marked. Whitespace and case can be ignored when the difference you care about is the words rather than the formatting. Everything runs in your browser, so contracts and drafts stay on your machine.
It finds the longest common subsequence — the largest set of lines appearing in both, in the same order — and treats everything else as added or removed. That is why inserting one line at the top shows as a single insertion rather than marking every following line as changed.
When comparing text that has been reformatted or re-wrapped, where every line would otherwise show as changed. Keep it on when whitespace is meaningful — indentation in code, or spacing in fixed-width data.
No. The comparison runs in your browser with no network request, which makes it safe for contracts, drafts and anything else you would not paste into a website.