It's machinima. A mini-tv show/movie acted out inside a video game. Red vs Blue is filmed using Halo (And now Halo2). The creators act out the action using their controllers, and then add voices afterwards.

www.redvsblue.com

It's in the 4th season at the moment, so you may be lost on the storyline, but watch at least one episode and you'll get what it's all about and how it works.