Full disclosure I have no idea how it works, but to take a stab at what I think is happening is that it's using a behind the scenes multi sig that is held by the guardians, but I don't believe the guardians know the other key holder's identity so I believe it's actually pretty secure. I'm assuming Fedi itself is using the multisig behind the scenes to send funds outside the group. I'm getting the overall image of this being more of a checking account type wallet. Much more secure than a standard hot wallet, but not cold storage. Hopefully Jeff can jump in at some point and help break this down.
I think because it's so early we wrestle with feeling comfortable with coins outside of cold storage and being held on a higher layer. I imagine the majority of the population won't bat an eye at something like this because they won't know any different by the time they adopt it. But for early adopters understanding cold storage and multisig this feels terrifying right now.