Machinima (Machine + Cinema) is about cheating a computer game into producing an animated story.
Because Machinima technic involves a game engine, every thing happens in real time – no rendering!. Since you are using the games assets – characters, props and sets – no modelling and texturing!. The characters for the animation can be customised in the Avatar creators of the game. Animation gets done in an instant and at very very low cost.
Machinima before it became what it is now, started off as gamers recording their victories in a game to show their friends. It then evolved to making short creative, funny animated sequences with voice and music. Some gaming companies encouraged machinima of their games by contests and showcasing them on their website. Some game companies threatened to sue the machinima producers.
Machinima involves good compromises and working around limitation of a game to deliver animated sequence. Machinima is getting professional now. The game companies and virtual worlds themselves provide tools, tips and tutorials to produce Machinima on their games. Second Life (secondlife.com), has many professional tools – virtual camera, recording in NTSC, PAL and HD. You can hire props, production managers, cast and crew from second life community. Sims2 is very popular for Machinima production. Movie storm is a complete Machinima production suite from ground up.
There are ful length features in Machinima now! There are even Machinima awards. But Machinima is best for certain kind of training videos,virals, low budget commercials and documentries. Copyright issues vary with different games that you use for Machinima and need to be considered before commercial use.