This appears to be voxelizing each tile.
In addition, it looks like the code is finding the contrast between tiles/pixels/voxels and using it in some kind of algorithm in order to determine what shape the resulting cube would be.
The result is, for example (if you look at the Dr. Mario Viruses and at the good doctor, himself), an array of either tiles or pixels that arrange themselves topographically to 'resemble' a 3D character, not unlike the characters from 3D-Dot Game Heroes.
The algorithm messes up at times, though, and as such, you get nonsense like the blue sky turning into a big huge blob in front of the play area, etc.
It's possible that, in time, it'll improve... but it'd have to be done on a game-by-game basis, not unlike what they did with Kirby, Kid Icarus, and Excitebike, on the 3DS.