When you select "webcam", UsbDeviceManager sets the USB config to "uvc" and the android.hardware.usb.action.USB_STATE broadcast is sent with the USB_FUNCTION_UVC boolean extra. DAW presumably listens for this broadcast to know when to start forwarding frames.
"That's just like Apple's Continuity Camera!" I can already hear some say. Well, the difference would be that Android 14's USB webcam feature wouldn't be exclusive to Pixel, and it would turn into a webcam that's compatible with any desktop OS (...and Android itself).
Though yes, Google isn't the first to turn a phone into a UVC/USB webcam. Some Motorola phones (https://twitter.com/MishaalRahman/status/1621638142607474693) that support "Ready For" already do this.