Characters with and without spaces, words, sentences, paragraphs, and how long the text takes to speak at a pace you set. Then it checks the length against the limits that actually cause trouble: button labels, course titles in an LMS list, alt text and short database fields.
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Characters with spaces and without, words, sentences, paragraphs and lines. Then how long the text takes to speak at a pace you can set, and how long it takes to read silently, which is a different and usually faster number.
Counting is rarely the real question. The real question is whether the text fits: a button label that wraps onto two lines, a course title truncated in an LMS list, an alt-text description cut off mid-sentence by a screen reader, a value too long for a database column. Those thresholds are checked for you.
A hundred and fifty words a minute is comfortable for narration a learner is hearing for the first time. Formal or technical material wants slower. A confident presenter reading familiar copy runs faster. Set it to your narrator rather than to an average.
It counts what you paste. It has no view on whether the writing is any good, and a low character count is not the same thing as clear writing. For pacing against actual recorded audio rather than an estimate, use the Narration Timing Converter.