writes "The Quarter Shrinker uses a technique called high velocity electromagnetic metal forming, or "Magneforming". This technique was originally developed by the aerospace industry, and has been popularized by Aerovox, Grumman, and Maxwell. It involves discharging a high energy capacitor bank through a work coil to generate a very powerful, rapidly changing magnetic field which then interacts with and "forms" the metal to be fabricated. It only works with metals of relatively high conductivity, such as copper or aluminum alloys, although it will work to a more limited extent with sheet steel...."
The site has some awesome pictures
of small metal objects which have been victimized. [Update: 02/22
: Note that the entire original site has been taken down and replaced with banner ads - however, there are working mirror links in the comments below.]