How do they work with leaf springs? I have seen people mention rear coilovers for the 300s, does is it just a shorter damper that does the initial drop in height and then an adjustable collar, so the leaf spring would still be in its standard form without extra stress on it?

Its a coilover unit (so a damper with a coil spring on it) and it works with the leaf spring.
The leaf spring will determine the ride height as it normally does, so to lower the vehicle youd need blocks.
Its just easier than having different leafs made with different spring rates. You can change the coil springs very cheaply and adjust the overall spring rate/stiffness of the backend quickly/easily.

Oh so it is just to determine spring rate and you still need to use blocks?

I got a pair of pin to pins that had two collars and some low internal diameter springs off a chap. I extended my shock and compressed the prong on the shock, and it made it so stiff if there was a bump on the road the car would jump sideways. Was quite fun with a locky. Will send you some photos luke