In the video at the end you can see it’s the former. They’re drawing a digital representation of the commands the emulator is sending to the “sewing machine”.
I had no idea you could connect a Game Boy to a sewing machine. The Mario embroidery patterns actually look kind of cute now that they are working. It is nice to see people preserving weird pieces of history like this.
Followup request - digital emulated sewing machine! Should be a breeze based on the blog!
Some discussion then: https://news.ycombinator.com/item?id=23425524