Does this actually use the cloudflare worker runtime or is this just a way to run code in v8 isolates?

It's a custom V8 runtime built with rusty_v8, not the actual Cloudflare runtime (github.com/openworkers/openworkers-runtime-v8). The goal is API compatibility – same Worker syntax (fetch handler, Request/Response, etc.) so you can migrate code easily. Under the hood it's completely independent.