R2 and D2 form a basic reference voltage source. They pull a small amount of current to provide this reference.
T1 is an emitter-follower amplifier. It:
- provides a higher-current copy of the reference voltage (minus the base-emitter drop),
- dissipates the excess voltage times the output current as heat in the transistor, and
- only loads the basic power supply with the required output current (rather than the MAXIMUM output current, which is what would happen if you tried to just shunt-regulate with the zener and a lower voltage resistor). (It also transfers some of the regulator's idling current to the load.)
It's actually a pretty good circuit for the original application. To get more efficiency you'd need to go to a switching regulator, which would have been overkill, AND have a lot of overvoltage from high RPM to pay for the power consumed by the regulator's internals. Hand-cranking would be at some narrow range of comfortable speeds, which can be shifted to something appropriate by the fixed gear ratio, so large overvoltage to be salvaged wouldn't have been an issue.