3D filter that goes in front of projector
My daughter wondered how 3-D movies worked. I explained the early ones used colored lenses and two different projectors sending different colors to slightly different spots on the screen, but that recent ones used polarization (orienting light in a common direction, so one lens of your glasses gets one view, the other another view, and the brain merges them to 3-D) and just one projector.
But Wired explains it better:
RealD cinema, currently the most widely used 3-D movie system in theaters, uses circular polarization — produced by a filter in front of the projector — to beam the film onto a silver screen. It does not require two projectors shooting out images in separate colors. The benefit of polarization is you can more naturally move your head without losing perception of the 3-D image.
In the case of Avatar, I felt the 3-D stuff helped the movie immensely and I recommend paying the extra few dollars and seeing it in 3-D.