According to the developer, ”Nowadays, anyone who hasn’t yet purchased StarCraft II can still play, thanks to the Starter Edition. While Starter Edition players have access to much of the game, there are many features that they previously couldn’t try before upgrading to the full game. Spawning closes that gap. Any player at a lower expansion level who joins a party that includes a player at a higher expansion level is Spawned up, and gets to play using the features and options of the highest expansion level for as long as they’re in a party together.
For example, when a Starter Edition player joins a party with a Wings of Liberty-level player, both are instantly playing Wings of Liberty. When those two players then join a party with a Heart of the Swarm-level player, they all immediately gain access to Heart of the Swarm content, and they keep that access until their party no longer includes any higher-expansion level players.”
Blizzard released a trailer to explain spawning as well - check it out in the video below.