Basically its a child Timeline that runs until it is removed. TellTarget points to the object (Movie clip) and then you can select frames from it.

This is the documentation on sprites...

Sprites
SWF sprites (movie clips) are a SWF movie contained within a SWF movie. A sprite tag consists of a series of control tags. All the definition tags should be defined in the main body of the file before the sprite is defined. When a sprite is placed on the display list, it starts a new thread of control where the frames of the sprite are processed independently of the current main timeline frame. A sprite is stopped when it is removed from the display list. The objects placed by a sprite are added to the display list as children of the sprite object. The sprite transform is concatenated to the object transforms.

DefineSprite
Defines a sprite. (SWF 3.0). Sprites are a grouped series of tags. They allow you to nest tags. Each sprite has an independent timeline.

Field Type Comment
Header RECORDHEADER Tag ID = 39
Sprite ID UI16 ID of sprite
Frame Count UI16 Total number of frames in sprite
...<mini file structure>... A series of tags



The valid tags within a sprite are as follows:

ShowFrame

PlaceObject

PlaceObject2

RemoveObject

RemoveObject2

DoAction

StartSound

FrameLabel

SoundStreamHead

SoundStreamBlock

End
If you have the Swish 2 Unwrapped Beta 6 or Insane Flash Animator 2.5 or higher you can see how Sprites work without downloading Flash (Since Flash is a much larger download).