In pictures 2&4 you can see the “post” that is welded to the wrench body on one end and the 3/8” drive is machined onto the other end. This is the core of the torque reading mechanism. The amount it twists when torque is applied, translates into rotation of the brass arm, which in turn actuates a rack and pinion that moves the needle. Pretty primitive but I guess that post is made from some alien metal that allows repeated torque application without permanent deformation.
The small screw in the slot is used to calibrate the tool. You loosen it off and slide it up or down to have the tool agree with a torque standard.