It is a shame that a device as insanely sophisticated as the 705, and its friends, can't make a half-sensible C calculation. If you trawl around the forums about this, there are all manner of opinions and work-arounds for this. They are mostly valid and will sharpen what is a very blunt tool, but it can never be accurate because it doesn't have enough physiological, biometric or environmental input, like temp and prevailing wind. That said, I think the Polar algorithm is a bit smarter, but anything that doesn't know power, expired CO2, BMR, Body Surface Area, (although it does know hight and weight so it might give it a stab), lean muscle mass and your VO2max just can't be accurate.
Those of us who would like to ride with a gas sensor strapped to our face and about 3Kg of other biometric equipment just have to find a cycling computer that can interpret it and 25 thousand bucks. You could hook it all up and velco a Laptop to your back, and that shouldn't take more than one hour to suit up and cost you 4kg in total! I can picture the cable-looms getting caught in the chain while you're riding the dge of a cliff. Whoops. On the upside, you would attract some attention.
Seriously, all cycle devices use various tricks to guesstimate C expense, but the Garmin can be relied on to be about the least accurate by consistently over-estimating, probably by 30-40%, since it doesn't use any real-time biometrics. Not even Heart Rate, and as jimboallee observes, that's not the real answer anyway.
It just looks at the workload suggested by the terrain-shape (altitude curve), how fast you go and how long you go for. It presumably accounts for sex (I don't mean if you stop for it, because you'd be on auto-pause and as high as your HR got, it doesn't "see" that: I mean if you're M or F) and some secret but static notion of your Basal Metabolic Rate based on height and weight.
Polar devices are a bit better if they have the feature which calculates your "training zones" based on a couple of sample warm-ups. Presuambly that's plugged into a kind of kindergarten VO2 max algorithm.
The only real value of the Garmin info is to trend your C expenditure; why anyone wants to do that is anyone's guess, but it will never even account for fitness as it doesn't use HR.
The next best thing is a power meter, but like a lot uf users, we amateurs really have no need of this degree of fanciness. Professionals and serious competitors might be able to convert all this into better riding but I'll stick to the things I need; an alarm clock, a bike and my Garmin705 with all its flaws. It's still fun to look at what you've done!