As you use your knife, it develops tiny ‘burrs’ which are rough bits of the edge that have bent out of shape. Ceramic gently pushes them back into alignment, straightening the edge without removing steel unnecessarily. These means that your knife stays sharp much longer, without having to be sharpened as often.
Ceramic sharpening “steels” will never wear out, but the surface can get clogged with removed metal particles. This can be cleaned out with a scouring pad to render them as good as new. If banged against things, the brittle ceramic can chip permanently, but that is not part of normal use.
Ceramic rods fall somewhere between honing and sharpening depending on their grit. A ceramic grit around 400-800 is sharpening your knife. A grit around 2000 is honing your knife.