It's called 'richtext', and is very simple. Take a look at /acs-templating/tcl/richtext-procs.tcl.
It offers buttons for B, I, and links on IE. That's it.
Would be awesome to make it do WYSIWYG on IE and Mozilla, but that's going to be significantly harder.
And yes, all it really does is add the buttons, and do the line break, paragraph break, link, and email translation which the regular text-to-html conversion already does.
So it's like the normal text-formatting, but also allowing you to use HTML tags.