Oh look. It's Sonic & Knuckles running on the PlayStation Vita, a handheld that's been out for less than a month. How is this possible? Don't get too alarmed; rather than cracking open the Vita itself, this homebrew Genesis emulator (originally built for the PSP) is running via the Vita's own PSP emulation.
So it's an emulator running inside another emulator.
As the video's uploader frwololo notes, "Sony put into place some security that will basically make this exploit moot as soon as it is made available," making clips like this "just useful for research right now."
Not that this will keep people from trying to break the Vita open for stuff like homebrew. It just means this is a step towards that, not the final breaking.