Unless there is some curious property of light I don't understand (and given my perplexity at radial polarization, there may well be), there's no way that external light coming into the glasses can be diminished by internal light emitted by the glasses.

For instance, if you're looking at a white wall in the real world, there's no way to render a black shape in front of it. You can only add luminance to it, in the same way a video projector can only add luminance to the screen it's projecting an image onto.

If the projection surface in front of the eye is also an LCD, it's possible to block out part of the background at the same time you project something onto it. I don't know what happens in this particular product, but from the Mars demo, it sounds like they can do some display of dark objects:

"The sun shines brightly over the rover, creating short black shadows on the ground beneath its legs."

It's possible that they are just getting that effect by making the Mars surface bright, but they could also be actively blocking light from the shadow regions. We'll have to wait for more details.

Certainly you can only add luminance, but consider that the goggles themselves are tinted, and the brightness of a display an inch from your eye will likely be far higher than the light bouncing off the wall. So while you can't "render" black, you should be able to simulate the darker part of the spectrum using negative space. That's not ideal, of course, but it's something.

LCD panels work by filtering out light emitted by a near-white backlight. If they are bouncing around th incoming light, they could be running it through such a panel to dynamically reduce light by color. They could then selectively add light using existing backlighting setup. Its at least theoretically possible, and I'm hoping that they've actually accomplished something like it.

This is correct. That's a big part of what Magic Leap is supposedly working on, being able to black out the background so that objects don't have the ghostly hologram look.

Yet the demo videos show some virtual objects that are darker than their background. That may be vaporware. So far, there seem to be no images on-line actually taken through the device. Has anyone seen any?

This matters. If it can only brighten things, it can only overlay bright things on top of the real world, which is what Google Glass did. Fine detail won't show up unless the background is very dark or very uniform.

If you look carefully at Microsoft's pictures, the backgrounds are subdued gray, black or brown, and free of glare. The press was forbidden to take pictures of or through the device, and their cameras and phones were confiscated for the demos. Microsoft used custom-built rooms for the demos, giving them total control over the contrast and lighting situation.

It could still work, but it's probably not going to look as good in the real world as it does in the demos.