What I understand about ICE:
It uses an additional Infra-Red channel to scan the film, so that only the dust and scratches are visible in that channel. Using this additional information, the touch-up algorithm can target the specific areas on the scanned picture affected by dust and scratches.
That's why it is more effective than PS's dust and scratches filter, because looking at RGB only, the software has no way to determine the areas affected by dust and scratches, thus have to apply global filtering (similar to blurring), which is not very effective and degrades the entire picture.