Well, while the sound is coming from the SID-chip, it actually is samples. The really impressive thing is that they can play samples even tough the SID-chip was not designed to play samples.

The author of "Cubase64" (Pex "Mahoney" Tufvesson) has written an interesting explanation of how it is made: https://livet.se/mahoney/c64-files/Cubase64_White_Paper_by_P...

The technique used in the two first links of parent comment, is, as I understand it, based on another work of Pex : https://livet.se/mahoney/c64-files/Musik_RunStop_Technical_D...