Essentially, someone wrote a game that allows you to play randomly generated Super Mario levels of arbitrary difficulty, and the contest was to write an AI that gets as far as possible on those levels, in real time. This is the winning entry.
(They actually ran two separate contests, but the videos of this agent were released around the time of the first contest, which I think would have discouraged new entrants for the second. Independently, the video went viral in Japan and picked up half a million views.)
This doesn't surprise me; Japan has a long internet tradition of Mario-related hacks. One example is the "automatic Mario" videos, specially-crafted Mario levels that are set up such that they will complete automatically if Mario moves continually to the right, and the sounds created will match the background music. A particularly impressive example: http://www.youtube.com/watch?v=OM0ib4GxLPw
That video of "automatic mario" is absolutely amazing. It boggles my mind just thinking about how much time that must have taken.
And to anyone who didn't check out that link, it's definitely worth watching. If you're not interested in the whole thing (eleven minutes) I recommend starting right at 8:00.
There's something fishy about that. It seems unlikely that even a perfectly intelligent bot could, for instance, never have to wait for the flying turtles to line up (as when bouncing across a chasm). They're just always there in the perfect arrangement when mario gets to them.
I'm not quite sure what you're saying, but it's worth mentioning that the levels generated by the engine are rather simple. For example, there are never any gaps so wide that they can't be jumped across easily, so no fancy bouncing needed.
(They actually ran two separate contests, but the videos of this agent were released around the time of the first contest, which I think would have discouraged new entrants for the second. Independently, the video went viral in Japan and picked up half a million views.)