It's real and was done by "Carson Williams of Mason, Ohio, who used 88 Light-O-Rama channels to control his 16,000 christmas lights." (From Snopes.com)
This is some of the type stuff we do daily at the company I work for. He was most likely using DMX protocol for the sequencing along with Midi time code referencing for the triggering and synchronization of the show. He put some time and effort into the programming, but it's not really that hard with the proper equipment at your disposal.
I saw the clip before I found out who did it & I know it is do-able. I guessed (pretty close) that it took about 90 DMX channels, and would take roughly 900-1200 individual steps within the 3 minute sequence shown. It would need to be triggered by the Midi time code reference step by step throughout the whole show. It would take hours to setup all the trigger points, but only has about 30-50 individual scenes that get bounced around to create the show.
I also found a glitch in his programming at the 02:06 mark, he inadvertently left one of the "P"s from "Happy Holidays" on, no big deal, but I caught it.
The kit that Rob T pointed out will not do everything he has going on in his show, that kit is only 16 channels that is already preprogrammed and doesn't allow you the access to reprogram individual steps, even though you can link more 16 channel boxes to it. The "Light-O-Rama" stuff used in the video cost him close to $1,800.00 not including the Christmas lights and other stuff like the ton of extension cords he had to run. I bet if you saw a daytime shot of his yard, it would look like a snakes nest, imagine 5 of these 16 channel packs and one more 8 channel pack all wired up to the strings of lights, lol.
Here's a link to another of his shows, more basic, but still impressive.