My understanding is that it uses vision processing algorithms on a camera nowadays, and works just fine in rain. Snow is an issue because the car can't see the lane markings through the snow -- a human drives through snow by remembering where they were or making a guess.
A computer can do dead-reckoning off of fixed objects (buildings, bridges) and remember a millimeter-level resolution map of where lanes are better than any human.
They still have trouble in snow. I think that's fine for a first version.
I fully expect the first consumer versions of automatic cars will have a "No, I won't drive for you today, Dave" mode. Driving in everything but snow would still be a huge win.
And if you ever look at a large parking lot after a thaw when it had been snowing earlier in the day you can see we're also horrible at predicting where the lines are and, for the most part, use other drivers as our guide.
There's a relatively simple fix for lane markings, that would help autonomous cars even in good weather. You know those reflective lane marking doodads they embed in the road surface? We start replacing them with magnetized nails that are pounded into the asphalt in intervals. Sensors in the car could recognize the lanes even in deep snow or pea-soup fog. And homeowners could easily outfit their driveways with a trip to Home Depot.
They don't use the embedded ones in most parts of snow countries like Canada, because it's hard to get them flush with the road so that they work with snowplows. AFAICT, Toronto still uses just plain old paint on most of its roads.
