Project Holodeck-Based Setup?

They're just using regular old blob tracking shining an LED into a jumbo ping-pong ball (the xy position of the ball corresponding to the xy position relative to the camera, and the radius of the ball corresponding to the distance from the camera (radius being sqrt(area/pi))). It's easy enough that it can be done in a single C# script in Unity in the webcam feed as I did above.

To answer your question: Nope, it would not work well outside. The system relies on being able to pick out a cyan sphere that is brighter than the surrounding environment. In sunlight I'm afraid the light from a PSMove would be completely drowned out/overpowered.

There's a trick you can try (though I've never tried it) if you want to build your own system:
1) Get a super bright LED that shines at one particular wavelength.
2) Get a optical Narrow Pass filter for that same wavelength and put it in front of the PSEye.

So now you can filter out 95% of the ambient sunlight and hopefully see the light of the ball clearly.

There was a short lived 3D system that relied on this technique (where there were two projectors, each with slightly different frequencies for red, green, and blue; and each lens on the glasses filtered out the other's reds, greens, and blues so each eye got its own full color image; it was nice because the effect didn't break when you turned your head).