The technology, as it is currently proposed has two parts, a communications component and a keyboard and mouse detection piece. It is envisioned that this would lie in the chipset or possibly the firmware, but the demo is strictly software. The game also needs to participate in the scheme in order for it all to work.
The concept is simple, the chipset records all input from the keyboard and mouse, and the game does the same. If the two don't match, something is giving inputs to the game that should not be, and you are 'cheating'. This is how most of the common hacks out there work.
As was said earlier, this could catch game cheats as well as click fraud, but could also help notify users of spyware and trojans. In general, if something emulates input, this should flag it.
I have my doubts about it's real world effectiveness, anything that is a standard defense is vulnerable to a standard crack. To make matters worse, the more effective it is, the higher priority it is to crack, be it for fame or for money.
In the end, I think this may do some good, but I don't think it will be foolproof. The internet is very good at breeding a better class of fools far quicker than the hardware update cycle. µ