Yeah - I've heard that as well - nothing mystical, just picking up on disturbances in the earth - fault lines, underground streams, etc...
I saw it in action at the Rollright Stones a few wweeks ago (wasn't that convinced, to be honest, of the methods used - dowsing for burials? Hmmmm...) But... I have had a go myself and was quite convinced of the movements of the rods. Usually the rods crossed over nothing visible - I assume they were these 'ere underground fault lines...
Come on, someone more knowledgeable - speak up! ;o)
G x