See the narrated walkthrough on youtube:
Description from the official site:
The Source Filmmaker (SFM) is the movie-making tool built and used by us here at Valve to make movies inside the Source game engine. Because the SFM uses the same assets as the game, anything that exists in the game can be used in the movie, and vice versa. By utilizing the hardware rendering power of a modern gaming PC, the SFM allows storytellers to work in a what-you-see-is-what-you-get environment so they can iterate in the context of what it will feel like for the final audience.
To celebrate the announcement of the SFM, we’ve also released “Meet the Pyro”, the ninth installment in the “Meet the Team” series. Like all of our animated shorts, we made it using the SFM.