Unlike the Nintendo Wii and PlayStation Move systems, Natal uses only a Web cam, and no handheld wand or control stick.

We stepped in front of the camera, at a recommended distance from the screen, and the Natal Web camera detected our presence and created an on-screen skeletal armature to mimic our movements..

Source: http://news.cnet.com/8301-17938_105-10467552-1.html