He is using a 555 timer chip to measure the subtle changes in capacitance, and feeding it into two pulse counter inputs that the C64 has. Every video cycle, he

He is using a 555 timer chip to measure the subtle changes in capacitance, and feeding it into two pulse counter inputs that the C64 has. Every video cycle, he pulls the values from those counters, and then resets them. He then maps the values from that into frequency/volume values that he feeds into the SID chip and that produces the sound.