The effect is actually somewhat similar to the parallax effect that is available in many phones and that gives a three-dimensional sense of depth to the experience, only here this is achieved with light and reflection, and you have much more depth to it. In fact, the user interface elements here appear like physical objects that reside just beneath the surface of the screen and it feels like you can reach out and physically touch them. Impressive stuff.
And yes, the look of the interface on the demo does look rather dated (with that skeuomorphic style), but we imagine the same principle could easily be applied to more modern visual styles as well. Also, this dynamic rendering will surely be taxing on the battery, but Burrough actually claims that the effect can be achieved very efficiently.
The way this all works is via a fish-eye lens on the front that captures a wide-angle shot of the environment. The software then projects this as an environment map into the specific scene and this is used to construct the realistic lighting and reflections.
Of course, this is nothing but a patented theoretical project at the moment, but it sure does look impressive. Would you like to have this level of realism on your phone, provided this did not drain the battery too quickly?