It works so that the winner gets it for the lowest bid they could make to outbid the opposition; up to their maximum bid amount. If the opposition places a bid higher than the highest bid that the original bidder can make, then the opposition bid becomes the highest bid.
So if the item is at £100 but you were to enter your highest bid as £1000 then you might go into the lead at £125 but the opposition may then bid up to say £150, your auto bid would then automatically bid £175 for you so you could well win. (depending on how the automatic system increases bids) and so it goes on until one of you runs out of bid.
Cheers, Phil