The video after the jump demonstrates the first prototype of Microsoft Surface. In one scene, we see a painting application that uses ordinary paint brushes to apply virtual paint. Later, we see a puzzle application that uses physical pieces to move and orient video content on the screen.
Finally, we see a tank game that allows the player to move physical toys that the Surface sees and incorporates into the game.
In addition to understanding the board state (walls and tanks), the Surface also interacts in the real world via the movement of the computer controlled (physical) tank.
…and now we have Surface 2.0 "Samsung SUR40" --a 4" thin screen with pixels that see instead of cameras.