A group at MIT has created a cool set of tools for interacting with virtual objects in the real world. They use iPads, a special glove and head tracking to create the experience of holding a window into another universe. You can reach into this world and create, destroy and manipulate objects in this word with your hands. Multiple people can interact with these virtual object simultaneously making it possible to collaborate. Very cool stuff with interesting possibilities. I especially like the collaborative nature of it.
More information is available here.