The hypothesis is that much of the time spent reading is not spent deciphering the words but rather on moving the eyes around. Your eyes flicker around constantly, lock onto a word, then sometimes flicker backwards to previous words (those are called regressions) and constitute somewhere between 10-15% of your reading time. The RSVP (rapid serial visual presentation) takes away this freedom, by displaying the word in a fixed place, and thus removes all of these eye movements. In principle this leaves you with just the time needed for word recognition, which is presumably what you want.

In practice, this is probably not as good as using your own eyes and here's why, in addition to the argument above about skipping words. You no longer can skip words, which people do all the time, especially short function words. You already have to preview the next word or two in order to know when you've lost your place, so even if you had perfect peripheral vision you would be no better off than before. There is also the fact that you can no longer backtrack if you lose your place or simply get bored. In principle, of course, this could be solved by always allowing the reader to step back to a previous line, but this requires extra time and in general these features are a mixed blessing.

As to whether you would want to use such a device, and assuming you could use it with other media, I would say not particularly. Unless you are an especially fast reader, in which case there just isn't anything for you to gain. The people most likely to benefit from this sort of device are the people who normally have the most regressions or lose track of where they are. It makes the sort of prose that is meant to be read in one sitting much easier, faster, and less confusing. But it fails spectacularly on more dense material or on material where the visual presentation is important in any way. It also does not help anyone who simply can't visualize a text in the same way others do.

Some people just don't have the right kind of brain, and this isn't really their fault.