Touch Cover latches onto the Surface tablet with magnets (much like the Apple’s Smart Cover does with the iPad), and “senses keystrokes as gestures”. It has a touchpad area for cursor manipulation, as well as a built-in accelerometer so that it knows when it’s folded back behind the tablet (thus preventing accidental input). Microsoft says that Touch Cover can detect the force you’re placing on it down to the gram and won’t input characters when you just have your fingers resting on the keys.
And impressive as this technology may be, it’s possible we’ve seen it before; four years ago, Microsoft showed off an unMouse Pad prototype at its Research Summit, which used force-sensing resistors to create a paper-thin multitouch trackpad that was also pressure-sensitive. I used it myself, and it could detect all 10 fingers with great accuracy. It seems like it would have been very easy for them to shoehorn that technology into the Touch Cover.
As for the kickstand, Microsoft says it’s made using a material called VaporMG (pronounced “vapour mag”), which is only .65mm thick and gives the folding hinge the look and feel of a car door, except it’s seamless.