This is the LilyPad Arduino Simple Board. It's controlled by an ATmega328 with the Arduino bootloader. It has fewer pins than the LilyPad Arduino Main Board, a built in power supply socket, and an on/off switch.
Magnets. How do they work? We're going to guess magic. This particular set of magnets are pretty darn strong, are able to rotate freely, and conduct electricity. That's a pretty darn good kind of magic, if you ask me.