The 555 operates at 2Hz. Output pin 3 drives the circuit with a positive then zero voltage. The other end of the circuit is connected to a voltage divider with the mid-point at approx 4.5v. This allows the red and green LEDs to alternately flash when no transistor is connected to the tester.
If a good transistor is connected, it will produce a short across the LED pair when the voltage is in one direction and only one LED will flash. If the transistor is open, both LED’s will flash and if the transistor is shorted, neither LED will flash.