Based on what the camera sees in the room
Microsoft filed for a parental control patent in March 2010 that only became public last week. This patent involves what the company calls “Parental Control Settings Based on Body Dimensions,” which translates into using Kinect to see who is in the room and restricting content on the Xbox or PC accordingly.
What is perhaps more interesting is that if Kinect sees kids walk into the room it is able to restrict content on the fly. The method uses measurement of the differences in size between kids and adults, and restricts content based on who is in front of the system.
With Microsoft said to be moving more into additional streaming services, the ability to restrict content could become paramount to many parents. Unless you are a small adult, this seems to be a pretty good way to restrict content. The real question is if Microsoft is actually planning to add support for it on the Xbox 360.