The tool is attached to a hand held frame. Actuators within the frame can move the tool to compensate for errors you would make when trying to cut a complex shape.
A high contrast pattern is placed on the work piece. They are the horizontal bands of shapes in the image above. The tool creates an internal map of the work piece using a camera. It can then accurately determine it’s location anywhere on the work piece without the drift that might occur using incremental positioning sensors. The outline of the cut to be made is shown on the screen. The location of the tool center is also shown on the screen. You only need to follow the line within the correction limits of the tool. The tool digitally corrects to produce remarkably good results.
This same idea could be applied to a lot of different 2D fabrication tools. There is a very comprehensive paper here showing all the details.