It figures out who is in the room by tracking multiple points on their skeletons and identifying voices, and makes educated guesses if someone moves between you and its sensors.
Kinect is accurate enough that your words and gestures can control a TV, choose movies and, of course, play games. It won't replace the computer keyboard soon, but the mouse and remote control should be concerned.
As Natal, Kinect began inspiring studios to create new kinds of immersive entertainment, blending games, movies and 3-D displays with your voice, image and motion.
Instead of just watching 3-D movies, you'll be inside them, with Kinect and other upcoming game interfaces pulling you from the couch and into the display.
After sitting through (actually standing, as the press was placed on the floor of the arena for a couple of hours with no seats) the performance, in which the Cirque's performers acted out and demonstrated a number of ways that Kinect can be used, my first impression is that Microsoft has hit on something with some serious potential. But at least as demonstrated Sunday, that potential hasn't been fully realized.