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Not much information has surfaced yet.  They just revealed it at CES.  Basically KODU is a game creation software that makes it easy enough for anyone to create games, but complex enough for them to be fun and comprehensive.  It's like a visual programming software.

Here is a screenshot of it:

Do you think with this new software, Microsoft is trying to target the type of customizable levels Little Big Planet offers?  I think it would be a fair supposition, especially since this looks like it may be easier, and a bit better given that you could make full games.  Hopefully more information will come out soon since it is CES and I will update you all on what I find!