There is crazy, crazy shit done in SSBM. The target contest vids are insane as well - people beating them in like 3-4 seconds.
I still can't do half of the "higher level" skills that masters can pull of. I can L-Cancel and that's about it, and even that isn't fully integrated into my gameplay because I'm never playing competitively (but the games I play are intense and always lots of fun). Wave dashing is something I never got good at, and I can't catch items for shit, nor do the "phantom shield" or whatever it's called. I guess I could look all of that up and learn it, but meh.
I could be wrong (better-players-than-me, feel free to correct myself), but I assume what he's doing is jumping, dropping bat, it hits Sandbag, he down-kicks to keep it from leaving the platform, L-cancels, catches bat, repeats this forever, then left jumps, throws bat upward, starts punch, lands, punch connects, and as Sandbag lifts, it hits bat, propelling it forward and dealing out....*cough* MASSIVE DAMAGE.
SSBM is one of the finest games ever created. The fact that you can do so much fluidly and it all make perfect sense is testament to that.