The app works by timing how long it takes to download a file of a known size and then calculating the connection speed. The downloaded files are hosted on a worldwide content delivery network, which should prevent network congestion or server latency impacting the accuracy of the results.
The app's settings let you adjust the size of the file downloaded (5, 10, 20, 50 and 100MB), with the larger files generally giving more accurate results.
It is worth noting that network connection speeds will depend on a number of factors such as the type of connection, quality of the connection and overall network utilization. Moreover, the theoretical maximum speed of a connection never matches up to what you get in the real world... So don't expect 42 Mbit/s result, even if you are fortunate enough to be with an operator offering a DC-HSDPA+ service!
Quick Bandwidth Test can be downloaded from the Windows Phone Marketplace for free.