The very short explanation:

* Split source image into red, green, and blue channels

* Run through the halftone qr generator[0]

* Recombine resulting QR codes into an RGB image

* Average combined QR codes with the source image

I'll probably post an article walking through the process using imagemagick some time next in August.

0. http://vecg.cs.ucl.ac.uk/Projects/SmartGeometry/halftone_QR/...