They do it, quite literally, with mirrors! The hardware is less than $100 in components, and so superior to anything we've seen. It's so exciting, it makes me a little breathless.
Imagine browsing any library's shelves and seeing the physical page of any book, no restrictions based on your location or the nature of the material -- wouldn't that be a REAL democratizing outcome from the Google scanning project?
I've heard futurist librarians speculate all libraries will shift to digital lending, because of the elimination of property concerns. Imagine if we do shift to digital lending, but it's because of the exponential resources available in virtual spaces. But what we will continue to need in that VR model? Way better metadata, improved funding. Aids, and user instruction at the point of need. We live in interesting times.