What does a read simulator do?
In general, a read simulator does the following:


Selects regions from a reference sequence with some sort of predefined or user-specified size distribution.
Converts the sequence from those regions into single or paired end reads with quality scores. The quality scores and read lengths are typically user defined.
Introduces errors into the aforementioned sequences, typically with more at the 3' end, which matches what comes from a sequencer.


A simulator may also try to reproduce the uneven coverage that you'd see in real data. In any case, most simulators will place the original coordinates of the simulated reads in the read names so that the quality of the resulting alignments of the reads can be assessed.