When the piston is not extended, the wire is cut and goes straight to the block beside the piston, thus powering it. So the piston extends...
And the two wires get connected, so the wire no longer goes to the block, and the piston is not powered anymore, so it retracts.
The cycle repeats, making a pulser.
The concept of "blocks being powered" is quite slippery unless you fully understand it. This great video really helped me complete my understanding of it.
There is also another strange thing. It is possible to stop the pulser by putting another block near the moving one and then removing it. Even though that block is powered, the piston is not extended. However, when you cause a redstone update (by placing/removing a block or changing a redstone current) near it, it starts going again. This concept is used in Piston-based BUD Switches.