I think it works by matching the lengths of all the tracks.
I also believe that pressed CDs have a serial number embedded in them that positively identifies the recording more reliably.

CDDB (now Gracenote) isn't a Microsoft product.

They apparently use "audio waveform fingerprint technology" so I could be wrong about track lengths.
It's not the first time I've heard of it getting it completely wrong.

Anahata