What are you guys confused about, specifically? Not trying to be rude here or anything, just wondering, since the Gamespot video does a pretty great job of explaining it.
http://www.gamespot.com/the-wonderful-101/videos/project-p-100-wii-u-e3-2012-stage-demo-6380810/
There's a display of the controls at around 1:51 of the video. Guard, jump, and dodge are mapped to buttons, and the gestures are controlled by the right stick or the gamepad, as people have said earlier in the topic. Much like Okami, the game pauses/goes into slowdown when you want to use gestural controls. You hold the A button (or X button, the vid's a little unclear) to put the game in slowdown, then move the stick or draw on the gamepad to transform your dudes. To get more guys, you go up to people you rescue and draw a circle around them, and they'll join your team.
X is your basic attack. The team members don't attack on their own really, they act like part of an overall group. Instead of a bunch of little dudes, think of them like a slime monster that surrounds its enemies to attack.