PokéBase - Pokémon Q&A
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Well judging from it Pokedex entries, Signal Beam confuses the target by attacking the target with a bright flashing beam of light. So basically the bright light sort of stuns the target and confuses it.

RSE- A strange beam attack that may confuse the foe.
FRLG- The foe is hit with a flashing beam that may also cause confusion.
Colo.XD- Fires a peculiar ray that may confuse the target.
DPPtHGSSBWB2W2- The user attacks with a sinister beam of light. It may also confuse the target.
XY- The user attacks with a sinister beam of light. This may also confuse the target.

Signal Beam has a 10% chance to confuse in the games.

Source: http://bulbapedia.bulbagarden.net/wiki/Signal_Beam_(move)

Hope I helped :)

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Are you asking about in-game, or how it would work in real life?

In- game it has a 10% percent chance to confuse.

In real life, I'm thinking it confuses the Pokemon with the different colors the weird noises.

Hope I helped.