A pickup on the guitar converts the notes being played into MIDI, the language of electronic music that can define properties of musical notes such as their pitch and duration. Meanwhile, a miniature head-mounted digital camera monitors the shape of your mouth and sends instructions to a synthesiser, which modifies the MIDI properties of the notes. Stretching your mouth wide in a soul-searching grimace produces a gritty, distorted sound, while opening and closing the mouth yields a plaintive wah-wah effect.
Interesting; though if they make one that works on audio rather than MIDI, and controls filters or some sort of resynthesis engine, it may be even better.
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