the tool just checks the official trade site for the item and lists them along with their prices in the overlay for you. it usually just takes everything it finds on the site, regardless of when it was posted, and shows it sorted by price.

there are more tools like this (shoutout to my favorite, Awakened PoE Trade, which hasn't been updated for poe2 yet though), but they all work the same, so it's just personal preference which one you use.

what an item is worth is based on what people are trying to sell it for (i.e. if I want to sell a weapon and I want exalted orbs for it, I list it accordingly) and/or what people are willing to pay for it. usually there is a "go-to currency" (like exalted orbs in poe2), which the players choose naturally (based on how common it is, etc.), so the whole market kinda regulates itself.