After thinking about this further, I'm not sure if I do understand it completely. Suppose that the battery is capable of supplying 120 mA and the LED uses 20 mA when fully lit. Whether the transistor uses 40 or 80 mA of current, the battery would still be able to provide enough current to fully light the LED. So how exactly does the transistor limit the current supplied to the LED in this circuit? Does it have to do with the transistor and LED being wired in parallel? I guess my knowledge of circuit theory is lacking here.So what is happening here is that the current through R2 splits between the transistor and the LED. The more current that is allowed to go through the transistor, the less current that will go through the LED (and vice-versa). As R3 increases in resistance, that results in less base current, which results in less collector current, which means that more current goes through the LED and it gets brighter.