They really are mostly bluster - except there's always the slight chance that this time, they mean it.

New York Times:

The drills are the South's third major exercise - the second conducted with the United States - since the sinking of a South Korean warship in the spring for which the South blamed the North.

The 11-day drills are the largest annual joint United States-South Korean military exercises. This year they involve 56,000 South Koreans and 30,000 Americans in South Korea and abroad, some of them working on computer simulations.

As a parallel exercise, 400,000 South Korean government employees undertake a civil defense drill, which this year will include a simulated terrorist attack ahead of the G-20 summit meeting to be held in Seoul in November.

The North routinely calls the drills warmongering and accuses South Korea and its American ally of preparing for an invasion. North Korea has for years pursued nuclear weapons for what it describes as a deterrent to foreign attacks.

Given the perilous domestic position of Dear Leader Kim in that he is currently attempting to smooth the way for a transition in leadership making his son the next North Korean strongman, the unpredictability of the regime ratchets up tensions automatically.

The North's nuclear capability injects a special kind of anxiety into the situation:

South Koreans have grown used to repeated North Korean threats of "sea of fire" or "nuclear holocaust" - so much so that such language no longer attracts much attention here, despite the recent increase in tension. At the same time, there is a growing fear in Seoul that North Korea's leadership may be increasingly confident that its nuclear arsenal will allow it to engage in military provocations with impunity. 

Every threat like this has to be taken seriously because we don't know the mind of Kim, we don't have much of a clue about the internal power struggles going on, and perhaps most worrisome, we don't know where the army stands in all of this.

Uncertainty is the most dangerous aspect of the relationship between the two Koreas.