Microsoft sees Kinect as the future, and the input epicenter of all other connected devices in your home. But Microsoft is also testing the Kinect for use in things like research. This latest "experiement" uses Kinect and a beam splitter to give the illusion that you're manipulating 3D holo-objects in your hands.
I don't really get how it works, so I'll let Microsoft explain it for you:
HoloDesk is a novel interactive system combining an optical see through display and Kinect camera to create the illusion that users are directly interacting with 3D graphics. A virtual image of a 3D scene is rendered through a half silvered mirror and spatially aligned with the real-world for the viewer.
Users easily reach into an interaction volume displaying the virtual image. This allows the user to literally get their hands into the virtual display. A novel real-time algorithm for representing hands and other physical objects, which are sensed by the Kinect inside this volume, allows physically realistic interaction between real and virtual 3D objects.
Still don't get it? Me either. Just watch the video of it in action.