It's just Mudbox from Autodesk time lapse modelling video (it's few times faster than real time). Mudbox is a digital sculpting software so you pretty much see how models are created for games nowadays. Of course that is not the whole process. It's just the beginning of it. Now you can appreciate how hard guys and gals work to make your favourite title come into life ;] Still, do not understand why is it here.
The game is a ninja rabbit fighting game. It's the sequel to Lugaru, a game Wolfire released in 2005. Their site, http://www.wolfire.com/ , has more information.
Towlie said it best: "I have no idea whats going on right now..." And that video should open with a warning of possible epilectic siezures.