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He's using the Smule Magic Piano app http://magicpiano.smule.com

It's not really that impressive, you just mash your fingers anywhere on the iPad and the song comes out.

The notes seem to come down from the top like Rock Band. I take it there's no way to mess up, only to miss notes?

Can't even miss notes. Every time you press, a note comes out. The only thing you can fail at is causing the notes to play at the right time.

If you press too far away you can make bad notes. This mode is actually pretty intensely fun if you try to tap the right places.

that's why people are laughing.