When the service control manager (SCM) user-mode component (which Services.exe implements) initializes during the boot process, the SCM checks the value of HKLM\SYSTEM\CurrentControlSet\Control\SafeBoot\Option\OptionValue to determine whether the system is performing a safe-mode boot. If so, the SCM mirrors the actions of IopSafebootDriverLoad. Although the SCM processes the services listed under HKLM\SYSTEM\CurrentControlSet\Services, it loads only services that the appropriate safe-mode subkey specifies by name.
Userinit, the component that initializes a user’s environment when the user logs on (\Windows\System32\Userinit.exe), is another user-mode component that needs to know whether the system is booting in safe mode. It checks the value of HKLM\SYSTEM\Current-ControlSet\Control\SafeBoot\Option\UseAlternateShell. If this value is set, Userinit runs the program specified as the user’s shell in the value HKLM\SYSTEM\CurrentControlSet\Control\SafeBoot\AlternateShell rather than executing Explorer.exe. Windows writes the program name Cmd.exe to the AlternateShell value during installation, making the Windows command prompt the default shell for safe mode with command prompt. Even though the command prompt is the shell, you can type Explorer.exe at the command prompt to start Windows Explorer, and you can run any other GUI program from the command prompt as well.
How does an application determine whether the system is booting in safe mode? By calling the Windows GetSystemMetrics(SM_CLEANBOOT) function. Batch scripts that need to perform certain operations when the system boots in safe mode look for the SAFEBOOT_OPTION environment variable because the system defines this environment variable only when booting in safe mode.
Source of Information : Microsoft Press Windows Internals 5th Edition