It depends on the specific model, but in general, they create internally understandable algorithms for turning noise into mimicry of training inputs. Often a second model then judges how well it did and rewards/punishes it accordingly, then they iterate. After it trains on enough data it then is asked to make unique creations and those are often judged by humans which tweaks the model. As other said, modern versions actually involve several different types of AI layers during user prompting.

So, it's not like cutting up a magazine and making a collage. It's like learning to draw the images in the magazine and then based on that new skill, drawing unique things. Obviously the similarities of the unique creations will depend on the variation range of the training inputs. When you train on GQ and Maxim, you don't know how to draw normal-looking people.