This may look banal, but to a seasoned XR developer it's witchcraft.
Hand cut outs are the bane of mixed reality devs.
They're doing real-time segmentation of your body and cutting it out based on depth of the 3D object in the scene. Haven't seen anything else come close to this
Update! Found this view in a developer session, which I think shows a realistic look at what we can expect in the final version. It's very good, close to perfect!