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.
ah. thanks.
so, what could it be used for then?
Well, Sony have said they want to use it for commercials, so it's definitely going to be put inside some phones soon, and they've said they want to use it for gaming, so a good place to look for ideas of what can be done, would be with other cases of AR in gaming, like these: