Obviously with the current setup it doesn't detect my hands in real space so the on-screen motions only happen as I make them in real life but as long as I keep my hands on the controllers, the illusion is great. Move the stick a little to the right and the guy on screen, sitting in the same position does the same.
I think once they add a Leap/Kinect/RealSense type depth cam on the front of these HMDs you'll get some basic hand tracking for better representation. As the article says, it doesn't have to have the most realistic graphics if the feeling of actually seeing your "avatar" moving 1:1 with your actual motions flips some switch in your perception and it's easy to feel like the virtual person in the virtual environment is an extension of you in the real world.
Was calibrating my DK2 yesterday and ran the demo scene (the desk with the stack of cards and soda can, etc). I tried to reach for the house plant and the can, knowing full well that they weren't there, and there was nothing triggered in my mind. Then I thought "it'd be fun to knock over the cards" and I swiped my arm through the space they would occupy, and my brain switched for a second or two and I fully expected to be hitting the cards and causing them to tumble. When it didn't happen, it was jarring, because it should have happened.
With the DK1 and DK2, those moments come almost randomly for me, and I keep wondering if we'll get to a point where they can be sustained for long periods of time, or if it'll be like those magic eye pictures where you finally see the sailboat and as long as you concentrate and don't blink you can keep looking at it.