I am assuming that they made a mod with a custom item.

there will be in Beta 1.9 if you have seen videos of the prerelease version1 the townsfolk are called testificate

you first need to get a golden apple and a splash potion of weakness. you then give them to the zombie villager and wait. it will eventually turn back into a testificate.

Yes, there is a mod much like that where all the normal "testificate" NPC villagers are made to look like actual humans who you can speak to. You can also get married to female NPCs and have children. The mod is called the Minecraft Comes Alive mod. Searching it should quickly get you to its forum post.