I think they're doing both docked and dockless bikeshare.
Note added today: When I first read about Zagster it seemed like they were entering the dockless bikeshare market, but so far all the ones I've seen have been docked.
However, it looks like their bikes can be used either as docked or dockless. Their only connection to the dock was a cable that locked to the integral wheel lock. It also looked like the dock itself was simply a frame for each bike with the cable that attached to the bike. I've since read that Zagster is doing both docked and dockless bikeshare in different places. This bike/dock combination certainly makes it look like the bikes could easily be used as dockless bikes if they decided not to use the dock. The checkin/out procedure looks like it works just like some other companies whose bikes are all dockless, as it doesn't actually the docks to process the rental at all.
This is clever, because it means their bike inventory is flexible between docked and dockless systems, and when they do use docks their docks are cheaper because they don't have to have processing power or locking systems in the dock. The bike and the app do it all, leaving a dock that's little more than a bike rack with some attached cables and a branded sign.