its called cloth first of all. second its cached or baked. it wouldnt be dynamic and running in real time. basically something very common in pretty much every ps3/360 game. it could also just be rigged and animated manually, so nothing to do with power.
and seriously? your impressed by the 3d mario game? really? thats whats impressing you on a technical level?
Edit : apperantly this is a joke, so just ignore this.