Ok go this site and listen to the virtual hair cut. YOU NEED HEADPHONES FOR THIS OTHERWISE IT WILL NOT WORK!
Also, close your eyes.
Its called holophony, or a holophonic sound recording.
Its recorded using a boom mic stand which resembles a persons head, with two microphones in the ears. Thats all that is needed to create this. The rest as 'Luigi' mentioned is done in your head
Georg Neumann GmbH - Products/Current Microphones//