Actually there are two types of Thermal Throttling:
TM1: Available in Pentium 4, Xeon, Celeron (Northwood and Prescott cores only) and Pentium M processors. In this type the Thermal Throttling function does not physically lower the CPU clock, but it inserts idle cycles between the instructions sent to the CPU core (i.e. it inserts wait states inside the processor), which lowers the processor performance, hence its temperature.
TM2: Used on socket 775 Pentium 4 and Celeron and Pentium M processors, this type really lowers the CPU clock. This is done by lowering the CPU clock multiplier.