And I've immediately noticed something unusual about it. Like a lot of Wii games, it uses the pointing functionality. The Wii solved this problem by using a small camera in the remote to track the location of two clusters of IR leds in the sensor bar. So far so good? Well, apart from the initial calibration Skyward Sword doesn't appear to use that at all.
What I think it does instead is track the orientation of the Wiimote based on the internal sensors. The Wiimote has had a 3-axis accelerometer built in since day one which can be used to calculate which way is down, but not which direction the Wiimote is pointing in. So a couple of years ago Nintendo added a 3-axis gyro in the form of the MotionPlus accessory. The gyro won't help for working out which way is down, but it'll track rotation about an axis.
In theory if you combine the two and pick an arbitrary direction as the reference point (which is basically what it does when it tells you to point the Wiimote at the TV), you can then track orientation and position without subsequently needing any external references. In practice the calculated position/orientation will drift due to accumulated errors (from rounding if nothing else), but it's still an impressive accomplishment.