Using Luminance Slider/Noise Reduction to Remove Noise

I had a photo that had way too much noise from being shot in a low light situation, so I had to crank up the ISO. I experimented with increasing the Luminance slider under Noise Reduction and it made a big difference with removing the visible noise. 

1. What exactly does increasing this amount due to remove the noise?

2. What is the downside of having to do this? I'm guessing there is something that happens to the image, though it was pretty unusable before with all of the noise, so even if it is negatively affecting the image, I guess it doesnt matter too much, I am just curious.

Thanks