|There is more information available on this subject at Machinima on the English Wikipedia.|
Machinima in Halo: Combat Evolved, such as Red vs Blue (seasons 1, 2, and 3), was filmed using the pistol, a glitch which raised a characters head if their gun was pointed at the ground, and panning using editing software. In Halo 2, it was filmed using the cease-fire trick, which left only the HUD to be edited out in post-production.
Halo 3's Theater is extremely useful to machinima makers. Theater mode allowed machinima makers to record in game and then go back and view it from different angles. The camera was no longer tied to a character and could fly through the air, allowing for more free filming and more natural pans. Machinima usually can be funny, suspenseful, serious (as in a war or something like that.) Most Machinima directors use a Capture Card (Haupaugge HD PVR for example) to capture it and do voicing later on.