It seems to be based on Photoshop’s “luminosity” calculation (Adobe’s invented word for what video people call “luma”) – in other words a weighted sum of the numerical values of the three channels. See http://en.wikipedia.org/wiki/Luma_(video)
This is sort of silly, since the actual effect of the composite channel has nothing to do with “luminosity”, but instead acts on each channel independently, and therefore unless a pixel’s color is a neutral gray, the curve will affect each of its component values independently. The clicked-on pixel might not be at the chosen point on the curve in any of the three components.
Basically, think of it as just a relatively arbitrary point that doesn’t bear much relation to the effect the curve will have on the clicked pixel, unless that pixel happens to be gray.