This is the creation of an ellipse. Using the definition: An ellipse is the locus of points, the sum, of whose distance of the two given points is constant. By construction, no matter the manipulation, the sum AC + CB, will always be constant, this is shown when you move point C. The creation of the two circles c and d individually represent AC and CB, respectively. Since the circles represent the segment, it allows an ellipse to form per the definition.
If the distance between the points (b) is larger that the distance of the ellipse (d), in this case it would simply flip the ellipse to be vertical instead of horizontal. This is what would happen if d < b. It would rotate.