LED dimming and modulating with two PWM signals
Your circuit works because Q2 is injecting a current that is uncontrollable by means of U2 (your error amplifier). 

When Q2 switches on, the emitter voltage of Q1 rises (limiting its drive current). As the feedback voltage across R4 rises due to Q2 being switched on, the differential error signal as seen by U2 becomes negative. U2 drives its output low trying to lower the voltage across R4. But, since Q1 can't sink current out of that node, U2 loses linear regulation and its output sits railed at ground. When Q2 switches off, U2 comes back into regulation.

There isn't much benefit to this topology, as U2 has to recover every switching cycle. 

You could equivalently just chop the input reference level going to the positive input of U2.

Or, you could also bypass D1 with a PNP transistor.