The underlined MSB of the multiplier is what is examined to see if we should add the multiplicand or not. If it is 1, we add the multiplicand, if 0 then don't. This bit is actually the N condition bit.

This algorithm may look tedious and complicated but it is a marvelously compact and efficient way of doing general multiplication. Real computers use algorithms that are very much like this, only they must deal with negative numbers as well as positives.