Basically, it's the combination of the words "machine" and "cinema"... using computer game graphics to tell a story.
There's a handy program out (about 3 years now) called "Moviestorm" (http://www.moviestorm.co.uk/) that lets you more directly move 3d characters around a movie set you create.
Ahh, for those who are wondering, Parker, me, and a couple others have joined efforts to create cartoons like this on Youtube. The Machinima group allows us to make money off of our cartoons.
You can see more work like this on the Pikaparody channel.