The auction has two stages. In the first stage, a midpoint is calculated from dealers' bids and offers, and the net of the physical settlement requests to sell and buy (the open interest) is found. In the second stage, limit orders are matched against the open interest to set the final price. The 2009 amendments to ISDA's CDS definitions made auction settlement the standard way to settle a CDS.
Consider a hypothetical example in which the final price is 25 per 100 of face value and the CDS has a notional amount of 1 billion yen. The CDS seller pays the buyer 750 million yen. A buyer that submitted a request in the auction to sell bonds with a face value of 1 billion yen also receives 250 million yen for the bonds, 1 billion yen in total, which is the same result as physical settlement.