The internaliser takes the other side, keeps the spread, and owes you a price at least as good as the nbbo. Done well it gives retail traders price-improvement and instant fills; done badly it means the dealer trades ahead of the flow it sees.
Regulators police it through best-execution duties, order-handling disclosures and the order-protection-rule.
Example: two clients of the same broker want 200 shares, one buying and one selling, with the market 30.00 / 30.04. The broker crosses them at 30.02: both get a cent better than the touch, the broker pays no exchange fee, and the trade is reported to a trade-reporting-facility.
Related: wholesaler, off-exchange-trading, price-improvement, payment-for-order-flow