These kind of sites were invented in the UK a few years ago. The idea is based on a practice where con artists set up similar kind of "auctions" in the real world (mainly in unused shops on London's Oxford street).
The hook is that as you walk past the shop you see that you have the chance to get a play station for $1. So, you and about 100 other people pay $1 with the hope of getting a play station. After everyone's put their money in then they "randomly" select 5 people in the audience and hand over the play station to them.
Of course after the show, the audience "plants" secretly give the play stations back. So, in essence they keep recycling the same play stations all day long and real punters keep paying $1 and not getting anything.