It uses the entire sensor and interpolates, unless you tell it otherwise (I think it's labeled "smart teleconverter" or such). Whether that improves high ISO performance or not is something *hotly* debated, but general consensus seems to be it doesn't do jack or, if it does help, it's less than what a half-decent NR program would do with a full-resolution image.
|_F0A5334-Edit_small by Dester Wallaboo|
from Open Air Fashion Photography
|Old Harry's Rocks by John93Robertson|
from View from the top - Sea