The technology in use here is pretty obvious. The buttons are metallic for a reason. As you press them down they make contact with a metal strip that contacts the screen at a pre-determined point. The software is only looking for touches at those points.
The capacitance from your thumb completes the circuit. The downside? The iPhone can only detect a maximum of 5 touches at a time. So that means there's a limit to how many buttons can be pressed simultaneously. There's also no L1/R1 buttons.
Could the technology be repeated easily? Yep. A determined person could take any generic iPhone case and with a dremel and some spare psp parts could probably make one in just a few hours.
In order for a game to really take advantage of the device it must be designed with the pre-determined points in mind. Which is great for single touch games, or games that look for touches on one side of the screen or another - Works out of the box. Anything more complicated will need some sort of interface layer, cooperation from the programmer, or remappable onscreen keyboard software. If you notice the demos in the video almost all seems to accept just one touch or side of the screen touches..