Not only can nanomachines disrupt the elctrical signals that our brains and nerves use, they can also mess with the chemical signals that the brain uses for communication (neurotransmitters).
Strictly speaking, Nano-machine is a term used for machines that are so small that their parts are individual molecules or atoms. Maybe Walt is talking about a bit of a larger machine, like an artificial virus or microbe which would be few hundred times bigger than nano-machines, where-upon micronbots or micro-machines would be a more appropriate term.
Its pretty much psudoscience, and i think nanobots are a bit of an overkill as a plot device. I mean, if Walt had access to microscopic machines that could modify the way a person acts, then he wouldnt need Nemesis. Or the rest of ANADAF. He could beat the Plodex (and other villains) by just injecting them with the machines and prevent them from being bad.
Of course maybe they could only afford to make one batch. or they are untested and Nemesis is the guinea pig. Or maybe there really are no nano- or micro- machines and Walt is just messing with Nem.