The "Align to Reference" tool (see Align Sanger Reads to a Reference Sequence) uses the MICA algorithm (Stokes & Glick, 2006 - https://doi.org/10.1186/1471-2105-7-427) to iteratively find seed matches between the reference and aligned sequence. Matches are combined to generate the best alignment. The Smith Waterman algorithm† (Smith & Waterman, 1981 - https://doi.org/10.1016/0022-2836(81)90087-5) is used to refine gaps between the perfectly matching regions and at the ends of the alignment.
† Smith Water Settings used: match = 1, mismatch = -2, open gap = -3, extend gap = -1
This approach allows SnapGene to align test sequences to very large reference sequences as well as circular reference sequences, while also handling mismatches, insertions, deletions and replacements within the alignment.