A few speculations on their technical approach:

Since it's running in the Flash Player, I assume that they're using ExternalInterface to make Javascript calls which resize and reposition the browser. Part of the beauty of what they've done here, however, is the synchronization of their movements with the specific growing and shrinking of the browser. This type of control could require some pretty sophisticated alpha curves for the particular parameters, or they might've just done it by hand using brute force.

In either case, I really enjoy the way it makes you think about the browser window -- kinda arresting like a good play where the 4th wall is broken cleverly.