The dividend is applied as a portion of the close value of the stock on the day previous to the ex date.
For example, if a stock has a close of $10 and pays a $1 dividend, the dividend represents 10% of the total so all previous values are reduced by 10%. This is opposed to the absolute method where all previous dates would have the ohlc reduced by $1.
In general, the logic is consistent with the proportional dividend adjustment method that is standard in the industry. Described here: http://www.crsp.org/products/documentation/crsp-calculations