It uses a series of div strips with a variation of CSS sliding doors to get the job done. If you need a refresher Douglas Bowman wrote an article for A List Apart called Sliding Doors of CSS in 2003.
Ivan has released his plugin under the MIT Open Source License and the GNU General Public License.
The plugin currently rotates through a set of given images at a predefined rate but there are plenty of opportunities to extend it for gallery navigation etc. I honestly can't wait till I have a spare moment to start playing with it.
Go check out the demo for jqFancyTransitions slideshow with strip effects. Don't try and tell me that's not completely awesome.
