The "guitar" is a series of lasers spaced out like guitar strings. There are eight lasers, one for each note in an octave. Simply input a music stream and the lasers light up synchronized to the notes in the music. Block the lit lasers with your hand to play the notes, which you hear through speakers.
See a demo here: http://www.youtube.com/watch?v=2jXdVuBmwm4. (In case you're wondering, the clapping sound in the video is someone clapping two chalkboard erasers together to release chalk dust into the box. The chalk dust illuminates the laser beam trails. There's also some background music playing all the time through the speakers.)