You download their pre-made PSD templates, it's a flattened 3D object similar to what you'll see when Pepakura unfolds. You put your own design/artwork on this template using a graphics software program that's compatible with the PSD file format (e.g. Adobe Photoshop, Paint Shop Pro, GIMP etc.). When you're finished with your design, you upload the template back to the Pimp It 3D site and it will be displayed in a Flash-based 3D viewer for every to see.
The concept is not new, if I remember correctly we've posted a couple of other sites before that are similar to this. Pimp It 3D has a fair amount of interesting 3D models to customize and hopefully they'll keep adding more ^^. Another neat feature is the ability to create your own community or group, which they call "gangs". Here's a short video:
A couple of notes, the pimped out Qee Bear paper toy (main example) on the front page is a bit off, black on black doesn't really go very well, a changeable background color would be nice. A built-in graphics editing tool would help a lot as well, even if it was only basic (paint brush, spray can, etc.)
This is not a formal review btw, found the site via Dolly Oblong - she created a custom paper toy for them called Gami (Lil King Gami), pictured on top.