It reduces brain stimulation. It works a bit like alcohol and can lead to a state that's (pretty much in essence, I think, but at least superficially somewhat) like mania, but without the need for less sleep, food, etc. and goal-directedness. Much like alcohol can cause such an experience somewhat. Basically you take more leaps of faith in your perception and behaviour. So it's the opposite of being anxious, which is, arguably, mania (as far as perception is concerned). That's called a dissociative state (though only in the one sense I described). Where alcohol is not as efficient, as it were, it's less toxic and consequently more effective.

It functions basically like benzodiazepines, but differently: the effects are much like those of benzodiazepines, but it makes your brain less active while benzodiazepines makes your brain more passive.

It also means that you shouldn't drink (or at least not a lot of) alcohol.

It does also very much the same thing as ketamine.

And yes, they use it for dementia and I could see it work, but that's simply because an anxiolytic, causing less anxiety, lengthens episodes. Mixed states, and ultra rapid cycling insofar you want to distinguish it from mixed states, change due to (an) anxiety (reaction) based on a previous state. If you dissociate a bit from that need to react, the anxiety, you just go with the flow (more). And nobody can remember much of anything in a mixed state.

Dementia can be very much like what we experience, including what might be called mania, depression, other delusions and quite likely hallucinations. It's (then) basically very-late-onset schizophrenia. Or rather, the old name for schizophrenia (which is distinguished from BP purely based on prognosis; you never recover from dementia so it's therefore schizophrenia as opposed to BP) is dementia praecox, dementia in the young.

Most importantly, as with all anxiolytics, they lose efficacy and eventually "work" paradoxically, which means the anxiety and the instability it causes will become worse (because you were shielded and therefore you are likely to forget how to cope without it, but not if you take the chance to learn what you couldn't due to anxiety/instability).

But it's not all bad. I had my first drink at 1pm today and I really needed it. Just don't rely on it other than to prepare yourself for a time without it. And that's difficult. Everyone likes easy answers.