From Nikonians Wiki
It is a deconvolution filter, which mathematically refocuses an image, extracting more information from the underlying pixels than the eye can normally interpret, and presenting it in a way which appears more in focus, or less motion blurred.
FocusMagic is a proprietary algorithm, but a similar effect can be achieved using Photoshop's smart sharpen.
Deconvolution filters should not be confused with sharpening routines, such as unsharp masking (USM), which introduce an optical effect which gives a visual impression of greater sharpness, but do not recover information from the image.
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