Essentially, 2 URL parameters are added to the family. The first is pathed to a csv file, which allows much easier editing than the text file. The second points to a batch script, which will copy the csv files to text files for Revit to use as the catalogue to load from.
Read more / via:
Revit @ Waterman: Type Catalogue Tips
Here's a question though: In 2014-world, does this scenario become a little different - as Type Catalogs can exist in the family?