The lawsone molecule in henna binds to the keratin protein in the hair and fills in cracks in the hair's cuticle.
Henna for Hair
It's different from a protein treatment in that it forms a coating around the strand:
Case Studies showing Microscopic Views of Hair
However, this coating still allows moisture in and out, so although some say henna makes their hair dry, a DT or two will get you back on track!
Ultimately, the way it helps the health of your hair is by preventing damage to the hair's cuticle. Think about it: instead of chipping away at your cuticle scales when you detangle, the henna coating is there to take some of the stress. It will chip before your cuticle has to chip. It's an additional layer of protection.