According to the Human Media Lab website, the PaperTab "emulates the natural handling of multiple sheets of paper by combining thin-film display, thin-film input and computing technologies through intuitive interaction design." PaperTabs "keep track of their location relative to each other" and their user. That seems like some kind of proximity sensor, as does the description of distance determining a PaperTab's active (full window) or inactive (icon) status.
"The location of each PaperTab is tracked on a desk using an electromagnetic tracker," according to the narration on the video. That's an interesting idea. Locational electromagnetic tracking systems are used in military applications and computer-assisted surgery, as well as kinematic research, such as motion tracking. I still don't get how the data moves from one PaperTab to another, and the consortium is not saying. What's hidden in the video is where users plug in all the PaperTabs under the desk. Perthaps that's some kind of communication and/or processing hub.
The PaperTabs can file and display thousands of paper documents, and the displays use E-ink, so they use very low power. The version used in the demos has a 150ppi screen pixel density displaying 16 levels of grays.
I am impressed by the work Plastic Logic is doing. I just wish it would find a manufacturing partner, so we can start using this totally cool, nifty technology sooner rather than later.