In the video, he places a piece of paper with the stencil of a keyboard on a table, then places his iPhone on the paper. The device has to be placed close in order to pick up the vibrations being generated, and calibrate the different definitions for those vibrations. In reality, the paper is just a guide, and you will see soon enough that it is not really needed.
Kräutli used a jailbroken iPhone 4 to create his software which he is developing for an assignment looking at user interfaces. The possibilities for something like this are pretty intriguing. As technology advances allowing the accelerometers to be more precise without sacrificing power demands, imagine being able to place your tablet or phone somewhere, calibrating the vibration of the surface, and then shooting off that lengthy email you need to send without making your thumbs do all the work.
sources: The Telegraph via Redmond Pie