Atmos is object-based mixing rather than the current channel-based mixing. Each object (sound effect, dialogue, music cue) is tagged with vectors: location in 3D space, movement, size, level, etc. The Atmos processor looks at where the sound is supposed to come from and sends it to the appropriate speaker (or combination of speakers).

If the recording engineer wants dialogue to be heard directly in front, then that object will be sent to the centre speaker. If the set-up doesn't have a centre speaker, it will be sent to the L/R speakers. Whether using a single speaker or combination of speakers, the dialogue will come from the intended direction.

This means that the system is scalable to different numbers of speakers. No need for separate 7.1, 5.1, and 2.0 mixes. Atmos can juggle 128 objects at any given time and feed up to 64 independent speakers. Dolby has said that they'd eventually like to bring the technology home (probably more for gaming than movies), but for the moment it remains for commercial theatres only.

The first movie mixed with Atmos (Pixar's 'Brave') will be out next week. There are about 14 theatres across the country equipped with an Atmos set-up.

Check out the short video:

http://www.dolby.com/us/en/professional/technology/cinema/dolby-atmos-video.html