As it is set currently the mod simply deletes any accounts that were created but never activated based on how long ago you set the timeframe. The maximum timeframe right now is set to one month, but it can easily be set to any time frame by adding a new select statement in the code. If there is enough call for it I can release a 1.1 version with extended timeframes.
The current method for the tool is simply to check if the account was ever activated by checking the date when they activated it. I checked and this is not affected by banning. I can't see that being an issue with the way the mod is written.
I *could* set it so it shows you a list of people who are going to be deleted, but unless my experience is vastly different than most admins for forums, most people who don't activate their account on my board in a reasonable amount of time aren't ever going to. If someone hits a snag they'll need to contact you anyway to get validation (if for some reason the email doesn't reach their email account) so that's covered also by just making them an account. If you want to give people a longer time to register (i honestly always use immediate as my timeframe) then a day or a week is probably good enough. If there is a general desire to see a list of those who will be deleted before it deletes the accounts I can add that into a 1.1 version--But in my experience you propably don't want to auto list most of the names since they tend to be drug names, sex names, or crappy fake names.
Here are some screenshots:
First, this is the actual selection screen. It's a simple drop down box to select the timeframe.
Next you can see where it adds the tool to the admin area. It shows up under the User admin area: