According to Wired, "In a magic trick that only geeks can pull off, researchers at MIT have found a method to let users click and scroll exactly the same way they would with a computer mouse, without the device actually being there."
They calls it "Mouseless". It makes use of an infrared laser and camera to track your hand and finger movements that it then translates into computer commands. According to Microsoft User Experience Architect Daniel Wigdor, "Like many other projects in the past, including Nintendo Power Glove and Fingerworks iGesture Pad, this attempts to see how we can use new tech to control old tech. It's just an intermediate step to where we want to be."
According to Pranav Mistry, of Mouseless, "A working prototype of Mouseless system costs approximately $20 to build."