Basically it sends a list of your plugins to the wordpress.org API server, which does some black magic to try to figure out if any of the plugins you have match the ones it has, then it returns version info back for them.
The API uses a rather elaborate mechanism to match plugins against plugins it knows about, but these are the main things checked for: Plugin URI, Plugin Name, and Plugin slug (the directory name the plugin is in)
Change any of those and you reduce the chances of it finding a match, but it might still get it if two of them match, for example.
Info in the readme.txt is not used for this. The header of the plugin’s PHP file itself is used.
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