The detaching segment is called an epitoke. It develops eyespots and its own swimming musculature, fills with eggs or sperm, and separates from the front of the worm, which stays in the reef and regenerates. The epitoke swims to the surface, ruptures and releases gametes, so fertilisation happens in open water in a brief window.
Synchrony is the point. Releasing gametes at the same hour across a reef raises fertilisation success and swamps predators with more food than they can eat in one night. The timing tracks the lunar cycle, with swarms concentrated around the last quarter in the local spring months, and is predictable enough that communities in Samoa and Fiji plan collection nights in advance and treat the catch as a delicacy.
The cue itself is not fully explained. Moonlight, tidal cycle, day length and temperature all covary, and separating the actual trigger has proved hard for palolo and for other lunar-spawning reef invertebrates. Taxonomy adds further confusion: Pacific palolo populations have been assigned to more than one name, and which populations belong to Palola viridis is not entirely settled.