The way the keyboard works is that there's 9 letters on each mini-tile and tapping or swiping the tile in a certain direction gives you a different letter. For example, a upward swipe on the left tile brings W, an upward diagonal right swipe brings S and a simple tap on that same tile creates E. It makes some sense but I'm confused at the layout of the letters—I'm sure I use the letter 'S' much more than 'Y' but it's the same motion on a different tile. I think it could be more efficiently laid out.
The bigger promise for the app is more to show that a keyboard smaller than your pinky finger is possible. And granted this keyboard would make typing on a wristwatch-type device possible (hello iPod nano!) but keep this away from my iPhone. Try out the app to see how it works. [iTunes via Wired]