Their FAQ[0] contains some more information, but still does not explain everything. They say "however, instead of being installed on your local machine, it is running in a virtualized environment so can be accessed from any Chrome browser or Chromebook. Because this version of Photoshop is running in a virtualized environment, you open, save, export and recover files from/to your Google Drive rather than your local file share."
It would seem that they are indeed streaming the video (VNC-style). More over, space requirement is only 350MB (Photoshop is normally much bigger), and there's also this:
"If network connectivity is lost, you will need to launch a new session. A recovery folder called ‘Photoshop Recovery’ will be created in the root of your Google drive. To recover files, simply double click to open a file."
Overall, this doesn't sound good at all. If they are streaming screen "video", color correction and pixel-level precision in design is going to be tough. Photoshop seems like one of the most difficult programs to work via VNC.