A magnet will cause a force on a wire carrying a current. This is the basis for most electrical motors, although the wire is usually made into a coil to amplify the effect. In the photograph, a metal rod rolls on metal rails over magnets (the black things). The hand generator causes a current to go through the rod (it is conducted to the rod by the rails). This causes the rod to roll to the right or the left, depending on which way the current is going.
Here is a picture of a smaller version of the same device.
The little generator works fine, but it has plastic gears, and enthusiastic kids can ruin one in a few minutes.
