Disney Research has a more detailed, but highly technical, explanation of its creation:

"An inverse dynamics solver and physics-based body model are used, ensuring physical plausibility by computing joint torques and contact forces. A prior model is also used to give an improved estimate of motion of internal joints."

Since the system allows real-time motion tracking with but a few accessories, it could make animated movies easier to create and full-body VR experiences common. Think about it: this system could allow companies to create truly immersive VR games and experiences for the masses, since users wouldn't need to wear full-body suits or to slap on over a dozen sensors.

You can see the system in action in the video below. Keep a close eye on the green man in middle, since that's the result of the physics-based system's computations. The yellow guy with the crazy dance steps? That's what the computer had to work with.