The technique requires a buffered splitter, one half of the signal is the "dry" tone, the other half is sent off in a loop where effects can be added. then the two signals are summed.
Being able to mix a dry signal with wet can restore attack and clarity to distorted sounds, prevent digital effects with poor analogue to digital converters from excessively degrading your tone, and sometimes having effects in a parallel chain can create the illusion of multiple layered instruments.
Usually this is done with a specialised pedal, like the Lehle Kurt is using. Some effects, like the popular Voodoo Drive, have a clean blend built in.
There are simple and more complex ways to do it with special stand-alone loopers. Depending on the effects used in the loop, a phase inverter is useful to correct the phase issues many effects will produce. The pedals usually have a stomp switch to activate the loop (and whatever effects are plugged into it) and a blend control to mix the dry and wet signals.
I know a bit about this stuff because I build custom effect pedals at http://www.codtone.com. I've built quite a few Rats with a clean blend for Kurt fans! If you'd like something like this, or an effects blender, drop me a line!