Yeah, he uses the Theremin as a MIDI input device. Originally, the Theremin is a instrument - the first electronic instrument actually - which has its own typical sound. But the modern Theremins, like this one from Moog, are MIDI equipped. That means you can control other electronic instruments with it, or also mixers, PCs, and so on. That makes it to exactly what you suggested for the DJ set: a gesture controlled user interface.
But the real Theremin sound can be amazing as well, if someone can play it well: