According to our understanding, the method involves a "radio frequency tag" and a type of programmable ROM chip that are paired with each game disc and can communicate wirelessly with the game system. The game discs would have an RFID tag embedded in them, and the gaming console would read that tag to determine if the game could be played in that game console. If it's a new game it would get bound to the account ID associated with that console and the ID or a relatable tag would be written to the chip. If it's a used game the tags won't match and the game won't run.
Notice that the console doesn't have to be online in order to do this check, as typically happened with other proposed DRM schemes used for example in Blu-ray movie discs.
The patent also describes the RFID tag being used to decrypt content on the disc, which could provide a method for locking certain content to certain users.
Of course, the fact that Sony has applied to patent this technology is not a confirmation that this kind of protection system will be finally implemented in PlayStation 4.
While a total ban on used game sales across an entire console would have an effect on the market for new games, it's not clear what that effect would be. The availability of cheaper used games typically discourage people from picking up new games.