They take Ubuntu LTS and add their software on top of it. Ubuntu is the base. It's stable because it's unchanging, you only get security and bug fixes, no new versions except the Neon additions. It's implemented like it is because starting with a complete and freely available distro like Ubuntu is a lot less work than building from scratch.
I think it qualifies as a distro by any current definition, but maybe not one they expect to be in general use. It seems to be quite popular despite that. I've never used it though so I can't comment on how it is.