Twilio Video is used to create a video that can be overlaid with cute graphics, allowing users to add a digital mirror effect. A project directory is set up and an HTML file, script.js file, and CSS file are created to render the Twilio Video JS SDK, create a button for users to activate the camera, and style the video container. The camera is activated when the button is clicked, and cute graphics are added to the video using JavaScript and CSS. The project allows users to customize their video with different backgrounds and graphics, making it a fun and creative way to enhance video calls or selfies.