I haven't been able to find the exact reference, but it most likely cuts all fuel to the engine. If it cut the spark, but continued to feed fuel into the mix, it would be pumping the raw fuel air mixture out the exhaust, which would be VERY BAD.

When I worked at 3M during the early 70's, we were developing an aftermarket/oem converter. One of the tests we did was to hook up an engine to a large mass (a 60 hp motor), run it till it was hot and kill the ignition but not the fuel supply. Suddenly getting raw fuel/air mix the catalyst tried to burn off all that unburned hydrocarbon. The test melted the exhaust pipe and part of the converter. If this had happen in a car, the heat would have easily burned a hole in the floor and probably would have set the car on fire.

This behavior was one of the driving forces to go with all-electronic ignition and to add electronic shut-offs to the carbs (and finally replace them with fuel injection).