The answer is easy. It is simple API call to an NT Native API, NTSetInformationProcess. It is defined as the class 'IoPriority' in the 2008 DDK. In Vista only two levels are supported by applications though, Very Low and Normal. There are technically 5 levels defined though -- Critical, High, Normal, Low, and Very Low. The Critical level is reserved for paging operations.
If you don't know anything about the NT Native APIs, then that might sound confusing. However, famaliarize yourself with them and it will take two seconds.
However, Microsoft does NOT recommend applications directly adjust their I/O priority. Instead, they recommend you simply set the CPU priority of the calling thread. The I/O priority is derived from that. In this way, the I/O priority addition was a 'drop in' addition to Windows.
I wrote more on this subject here (and will keep it updated): http://www.bitsum.com/pl_io_priority.php
As of Process Lasso v4.09.07 beta, it can set current and default/persistent I/O priorities for processes. I continue to work on it, and by v4.1 full support will be available. So, Process Hacker is not the only tool that can freely be used to set the I/O priority directly.