That was done by adding some special capabilities to the dash version of the Flash Player - I'm not sure if those same changes were made to the version that runs on the Chumby-branded devices.  Mostly it requires the ability to restrict a Flash movie to run in a subset of the display, and to synthesize touchscreen events. (you actually interact with the Control Panel, which checks if you're touching the widget area, and it manufactures similar events to the widget.