Disclaimer The following links are phishing links, please do not sign in to them

Today, a friend of mine came across a link which is a phishing link but I have no idea how it works.

This is the link which a friend was sent: hxxp://steạmcommunlty(dot)com/tradeoffer/new/

Notice the a in steam is a special character? When you go to that link and copy and paste it, it somehow converts to xn--stemcommunlty-kf2g(dot)com

How is it doing that? Is it something to do with the ạ converting into something else making it a completely different URL?