Your mind can do amazing things
When I last saw that one do the rounds it did send me on a Google spree and I ended up with a very good paper explaining the current theories behind word recognition and how it relates to sight. It had an example where you can actually do the opposite and fuck with people's ability to read just by alternating or randomising the capitalisation, which I thought was kinda cool - and it would be even better (if slightly diabolical) to write an "only smart people can read this" rant in that style. Can't remember where it was, though...
...anyway, that post explains why the trick works nicely, I just wish they'd stop being accompanied "a brain study says this" crap too.
Context affects all perception. That's why you read this as "THE CAT" and not "TAE CHT". Without this, we wouldn't be able to read anyone's handwriting unless it was a near-perfect replication of "ideal" alphabetic letters.