So what's the real question you're asking?
Do you want to know about video processing, or do you want to know why his CRT looks so good?
As far as the easy question of your thread title, a video processor can be just about anything that modifies a video signal. In the context of home theater, we're usually talking about something that does deinterlacing and/or upscaling.
For the second, it could be any combination a number of reasons: good processing, good quality CRT, good calibration. Maybe if you could quantify what it is that you like so much about the picture (contrast, resolution, motion, color fidelity, etc...) and to what system(s) you're comparing it (other CRT, plasma, DLP, RP, etc...) we could all try to figure out what B&O is doing to make it so good.
(Personally I have always been very impressed with their displays, but have never really studied them closely to determine why.)