The GD-ROM (GD for "GigaDisk", referring to the capacity of approx. 1 GB) drive is custom made for SEGA by Yamaha. It uses a regular CD-ROM laser (as opposed to a DVD drive which uses a different wavelength), but has the necessary firmware to access data stored in the proprietary GD-ROM format, which packs the bits more densely than on a normal Yellow Book CD.
A GD-ROM disk actually consits of two data regions, separated by a data-less separator ring. The inner region contains a normal Yellow Book CD-ROM track, and a Red Book CD-DA track. This region can be read in any CD drive. The outer region (outside the separator ring) is the high-density area which contains the actual game data (both files and CD-DA audio).
What little information is known about the GD-ROMs originate mainly from this Powerpoint presentation made by SEGA techs: