Well, it's not quite like that.

Players start (this part is optional) inside a locked room, once everyone has downloaded and is ready, the server hits a trigger crate which starts the race.
The racers race through the level in an ordinary way.
When they reach the finish, either they get a coin, or a trigger zone. If you have enough coins, or have gotten enough triggers (using a fairly simple system), you are warped to the end area, which can be basically anything. It usually has gems and an exit.

It's superior to race mode in just about everything, except that it doesn't show you lap times, or which lap you're in.