My overactive imagination explains the technology this way. As you drag the figure around the map, a small hover droid is activated and follows your movements over the cityscape of New York City. When you let go over, say, 436 11th Ave., the droid rapidly descends in front of the Jacob Javits Center and quickly takes a series of snaps around its spheroid body, which are then uploaded via a sat-com link to the servers at Google HQ.
Seriously, it's a pretty trick feature that should make driving to your destination much easier since you will actually know what your destination looks like. Hopefully the feature quickly rolls out in other cities besides the biggest ones.
[Source: Google Maps via Digg]