Long ago, a colleague of mine, Michael Naimark (you may recall other projects of his that we've mentioned before) created a cool art piece where he put a camera in the middle of a room on a turntable and recorded some film (yes, it was that long ago - originally in the 19802 then recreated in 2005). Then he physically painted the entire room white, put a projector in the middle of the room on that same turntable and projected the previous colors back onto the room. The cool part was that when he filmed, there were people in the room. These people weren't there when the filmed projected back, so they ended up looking like ghostly figures moving around. There is a short video available here. Please take a look.
I bring up Michael's project because it was the first time that I saw projection augment objects in the real world in an interesting way. Now the the folks at Microsoft are taking this concept to the next level using a projector and a Kinect. With this combination, they are able to scan your living room and calculate some fancy graphics to make the experience on your TV move outside the bounds of the screen. In fact they can create effects that make it seem as if your whole room is shaking or changing colors. The whole thing is rather clever. Take a look at the video below to see what they have done.
A research paper is available here.
More info here