It dumps each track separately into a file, which is then on a PC combined (with the combine-dmk tool) into a single disk image in the DMK format, which is documented here: http://www.trs-80.com/wordpress/dsk-and-dmk-image-utilities/
The idea is that on MSX, the FDC that has most capabilities is the WD2793. It has a read track command to read the raw data from the track. As any copy protection should be readable by the real hardware, any copy protection can be dumped with the real hardware. So this is exactly what the read-dmk tool for MSX is doing: using the read track command of the WD2793 to dump all info from the track into a file. It's then just a matter of putting the data into the disk image file. The DMK format has all features that the WD2793 supports, so it is 100% sufficient to support all disks that exists for MSX with any protection or formatting scheme.
Currently openMSX is the only emulator that supports the DMK format, but it would be cool if someone ported the openMSX code to MESS of course
It's GPL v2.