Ductless AC systems work precisely as regular AC units but without air ducts. When in AC mode, the air handler runs warm air from inside the house over evaporator coils filled with refrigerant. The refrigerant absorbs heat from the air. The heat is then sent to the outdoor unit.
When your home needs heating, this process is reversed. The outdoor unit absorbs heat from the outside air and then passes this air through the refrigerant line to your air handler. This process creates the warm air that is blown into your home.