Hauptwerk is basically a computer program designed to simulate pipe organ tone generation. It can run on the Windows platform or the Apple Mac. In other words, it does not use proprietary hardware, but uses the plentifully available PC, and thus is able to use it's power. And the average PC is much more powerful than what organ manufacturers use in their organs.
Hauptwerk does it's simulation by using sample sets, available from Hauptwerk or 3rd party developers. Usually what is done is important or historically significant organs are sampled (digitally recorded) note by note, and then processed.
What is required to get a system running, is MIDI inputs from keyboard (s), stop and piston controls, either through real units or via touch screens. This is the front end. The back end requires an DAC (usually more than 2 channels), amplifiers and speakers.
All this requires being able to integrate everything into a system so it works.
If done correctly, and not on the cheap, using one of the better sample sets, the results can be just amazing - can be as good as the best from what vendors can supply.
Hauptwerk is not the only system out there using this approach. There is J-Organ and some others, but Hauptwerk is easily the best in terms of potential results. Also, with Hauptwerk, it has become a community, folks from all over the world are into it, and it is growing daily.
Hauptwerk, I believe is the way forward into the future. It rides on technology which continues to get more stable and powerful, so the company does not have to design any hardware. It has many partners in making sample sets, so interesting organs are continually being added to the catalog. I'm not sure what manufacturers of digital organs think about the concept, but they know they are increasingly losing sales to Hauptwerk. Churches and Concert Halls are buying into the concept, and many folks who have digital organs, are adding Hauptwerk through the MIDI port.
I hope I have helped you understand it a bit better.