This public post from a Discord moderator sums it up quite nicely:
"it's very simple in the pool - you deposit ETH, which gets bundled with ETH we collect with other users and is sent to staking. You get the deposit token, sETH2, to represent your stake - you can move it around like you would move ETH, subject to integrations with other protocols (coming soon). As long as you hold sETH2, you will accrue rETH2, which represents your staking rewards. Both tokens are exchangeable back into ETH upon Phase 2, which is when you can withdraw from the pool. So it's simple: deposit ETH -> sit on your tokens -> withdraw in Phase 2. More about the tokens: they represent your staking deposit and accrued rewards, so if you transfer them somewhere else (via a swap transaction or simply send it), it means that you transfer your stake. The advantage of having tokens is being able to swap them for ETH via liquidity pools (coming very soon) before phase 2. Also, in the future, use your tokens as you would use ETH in various protocols, be it for borrowing more crypto, farming etc. Our tokens are uniquely positioned to help you extract the most yield from your capital, so you're in the right place."
The APY formula works as follows:
"the APY is based on the following formula: ETH in the Pool * % of activated ETH * network reward rate * (1-StakeWise commission) / ETH in the Pool. What this means is that rewards from existing (activated) validators are being shared with everyone who deposited (regardless of whether their ETH has been activated or not) - the implication is that when deposits grow strongly, APY goes down. We are working to avoid this by removing such socialization, meaning that APYs of our early stakers will be protected in the period of growth in ETH deposits that will follow."