Basically, it's a magic mirror application that let's you try on different clothes. But, there's so much more to it - the user interface is engaged via motion detection, and you can take a photo of yourself with your new virtual clothes, and share it on facebook with your friend. However, one thing this application fails to do, is to show you whether any of the clothes fit, as they all stay static and don't interact with your body movements. I don't expect this application to improve the 3.57% conversion rate state in the next video.
Now, this application is only in alpha state, and a lot can change until it goes public. And admittedly, Zugara has some nice ideas on the future use cases of such application (e.g. shop together with your friends, online). Nevertheless, I think it's too early for it to become useful. Maybe when Project Natal matures, but not now.
Oh, and lest I forget, this technology is patent pending. Great.
Update: Techcrunch had a similar article about Zugara a few days ago.