It doesn't seem to actually differentiate at all. If I move my iPhone around on a plane (table), the dots move. If I hold in in my hand and move left/right, the dots move. If I hold it in my hand and raise/lower my arm, the dots don't move. That's actually just an integration of acceleration/gyro, and possibly combined with a simple model of how a phone is held (e.g. assume rotations happen from a point 30cm away from the bottom of the phone).