It looks like he just uses the "contenteditable" property ( http://valums.com/edit-in-place/ ) to make it editable, and then displays it as a word-wrap: pre element.
While I can't think of any immediate applications, I had never realized that contenteditable was so widely supported. I'm going to have to try using it in my next project...
This is pretty cool.
1) How is it done?
2) How are you hiding how it's done?
Edit: Is it done through a Chrome extension?