The money you invest is from before tax...so say you normally make $100 and pay tax of $25, you would have $75 to invest. By being allowed to use before tax money, the entire $100 is invested. So you have more money working for you.
Then the (presumably) gains on your investment, which would normally be taxed as realized, (so if you have interest income or sell a stock at a gain you normally really receive only that after tax amount again), aren't taxed currently. Leaving you all your investment income to re-invest.
It does not go untaxed however. When you reeach retirement and start withdrawing it, the amount you withdraw is taxable then. (Of course, it has worked for you the whole time, is now paid in later probably deflated dollars, and probably when your income and rate is lower).