The first step is that a participating author or publisher has to sign up to sell ebooks through Autography. The author then downloads the app to an iPad, goes to events, and signs autographs. The autograph is integrated into an ebook sold through Autography and then the fan is sent an email. The fan can also download the free sample autograph by itself without the ebook and at no cost. The signed ebook is offered in Mobi or Epub and it's DRM free.
The actual signing is done with a standard stylus, not any special pen or gadget. One of the styluses they had on hand was made by Targus, and it was designed for capacitive touch screens like the iPad. They also recently found a wholesaler for the styluses and plan to sell them to partners ($2 is the wholesale price).
Autography have a lot of options for their app. There's multiple alternate backgrounds, several ink colors, and a number of ink thicknesses. Also, if the author is using an iPad 2, you can take a picture with the iPad's camera and use that as the background for the autograph.
The hardware costs for the author is limited to a tablet and a stylus. At first I didn't like the idea of tying this to an iPad, but you have to sign something and the iPad is ubiquitous enough that if an author doesn't have one, someone will. A con organizer might provide it, even. Four or 5 authors could use it in turn.
If I wanted to do an ebook signing at a con in the near future, I'd use Autography.