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S____M____C____C said:

that looks impressive.

what is augmented reality and in basic terms how does it work?

AR is when you look around you with a camera, and various things are being overlaid onto the image, like what you see in the video.

The reason this is particularly impressive, is because normally, AR technology hasn't been stable enough to just use random items, but you had to use special markers that the camera can recognize, like the 3DS does. Sony's implementation here doesn't need anything like that though, it can recognize items that aren't marked.