Details can be read on Pirates Prospects.
Essentially his new contract only guarantees him 1 million dollars but he can earn up to the original 12.75 million if he stays healthy. Liriano can earn an additional 3.75 million in 2013 based on time he spend on the DL and he has a vesting options that can vest at either 5, 6 or 8 million depending on DL time. If it vests below 8 million he can make up the difference by games started in 2014.
So essentially it is a complicated deal that protects the Pirates against Liriano being injured, which is of course a good thing.
To make room for Liriano the Pirates outrighted Mazzaro to AAA. I would have preferred Gomez but whatever.