Pixilation is a form of animation which most simulates live-action, but uses stop motion techniques. In stop motion, one takes still images of inanimate objects, from a stationary camera. By moving the objects slightly with each picture and streaming the pictures together, one can give the illusion that the object is moving on it's own. This same principle is used in pixilation, only instead of using inanimate objects, people are used.
Why use still images when people can move as directed? One of the most prevalent uses of pixilation is to give the illusion that a body is doing something physically impossible. For example, in this video, it appears as though the boy is floating.
A variety of other illusions can be accomplished using pixilation. One of the most famous and acclaimed shorts which employed these technique's is Norman McClaren's Neighbors.