The patent shows three examples of how this would work: A block could extend to make the Move controller function as a sword, or rotate to give it the handle and feel of a shotgun. Add on another block for a secondary handle and the shotgun becomes a rifle. Or, in more technical terms, according to the patent: "In the present embodiment, multiple blocks are assembled or transformed, and the shape and position thereof are used as input values for information processing."
Keep in mind that patents are just patents, and there's no guarantee consumers will ever see a product like this that they could actually purchase. A patent for a transforming controller that featured both DualShock and Move functionality, for example, has yet to show its face in the real world.