It removes some bad rum congeners, adds some oak component flavors and combines with the rum to creat some brand new esters. Things we perceive as vanilla, caramel, sweetness, almond, lite smoke, cinnamon, darker prune and raisin tones, toasty flavors, color, long and warming (chest) finish, astringency, fragrant top notes, coconut, celery/reedy, sherry/bourbon tastes, dried and deeper fruit tones, and of course wood and oak - all are the result of oak barrel aging.
The original use of used barrels also has a great impact. Ian Wisniewski of Whisky World:
Then you get into a near unending series of options regarding the prepartion and use of the oak barrels. Amazingly complex, both science and art. The use of oak chips, though not common, has been done in an attempt to provide more oak surface area and to thus shorten the process. But nothing substitutes for time, money and patience. Truly fascinating stuff. But one fact remains:In terms of colour co-ordination, sherry casks lend an orangey, amber hue, which is distinct from the lighter, golden, straw tint of bourbon barrels. The flavour profile also varies significantly with sherry casks contributing rich fruit (such as raisins, prunes, dates, figs, apricots), metallic tones, fruitcake, fortified wine, almond and walnut notes, spices such as nutmeg, ginger and cloves, not to mention creme caramel, chocolate, and a (positive) sulphurous note, delivered within a rich sweetness.
Bourbon barrels lend a lighter, drier sweetness, with a palate thriving on a medley of flavours: vanilla, honey, various fruits, almonds, hazelnuts, coconut, creme brulee, sherbet, spices such as cinnamon, as well as mint and eucalyptus notes.
Young or old, without oak you simply don't have what we call rum as 97% of the rum drinking world knows it.
How 'bout over-oaking?
This is one of the two principal reasons most rum aging barrels are heavily charred - to reduce the oak taste. But all the other characteristics added by oak are affected as well to varying degrees. To make things more complicated these individual changes and characteristics occur at different rates. Apparently barrels have individual characteristics as well.
The master blender is a real artist who knows his barrels intimately. These are his (art) palate from which he/she hopes to create a great rum. From what I understand, the aging rum is checked frequently and notes recorded before it finally is selected and may become part of a blend. It's hard not to admire the dedication and skill of these artists.
Most of the modern distilleries use gas chromatographs to isolate almost all the esters and flavors scientifically, but in the end it's all up to the magic and art of the master blender. People like Joy Spence, Jerry Edwards and Richard Seale.
We once met Seale at a tasting in Miami and noted he had a black leather belt case for his personal tasting glass. Later, when I researched glasses and tasting techniques I contacted tasters I respected. Naturally, I was very curious about Seale's glass - he did report that his were custom made for him, were similar to sherry copitas, but avoided sharing his source.
I really couldn't blame him. His art is his livelihood. He was also one of the very first to start experimenting with sherry and other non-bourbon woods.