Handwritten addresses aren't fully OCRed for the system to work. I worked on the first systems that were released (in the 90s), and the basic algorithm was as

Handwritten addresses aren't fully OCRed for the system to work. I worked on the first systems that were released (in the 90s), and the basic algorithm was as follows: first, try to read all the numbers in the address, and identify the ZIP and the street number. Now, given the ZIP and the street number, the number of possible street names is very small (on average, 4 or 5); this is done via the USPS's address database. Now the problem becomes one of matching the handwritten street name with one of these 4-5 names. (Of course, there's more to it, but this is the gist of it). Last I heard, the percentage of handwritten mail successfully sorted by a machine had reached in the low 80s. The Russian company Parasoft (who also worked on Newton's online handwriting recognition) has been the leader in this field.