Ahhh, Wrong. Good guess though, but that kind of stuff makes it a lot more complicated than you'd think. We don't really do it like this. Honestly, everything like the gif or on tv that you see, be it with dancers or something mechanical like this is prebaked into a few layers with changing masks. The rest is just coordination and practice.

The process is sorta like this: dancer, choreographer, stage builder and I (motion graphic designer and stage specialist) will meet and draw up a loose plan about what we're doing. Get a rough stage design down and figure out the big points. The choreographer and dancer will figure out a routine and then we meet again. Typically we take a video of the dancer performing the routine on a green screen and turn it into a mask (a black and white image, think like iPod commercial but less flamboyant) and do all the special effects and graphics interacting with the mask-person. Once this part is done you drop out the mask and the performer performs in front of the video. If the choreography is tight; it looks like the dancer is casting off flames or interacting with the video, what ever it's doing.

All prebaked. I'm not going to lie, some artists out there do some cool shit with a language called 'processing'. However when you're relying on a camera to feed information into a computer, decode it, apply an effect or code based on information in said frames, then wait for the computer to display it, well that's a lot of input lag to be dealing with, and will just look bad and laggy.

Computers just can't give us that kind of fast processing, and likely won't be able to, at roughly 1ms, anytime soon. I know its not a fun or magical answer. Sorry haha. However, this particular installation is quite good.

Source is I do projection mapping for a living.