It depends. Some autodigitizing software can take simple clipart and autodigitize. Most people are not happy with the results.
With a scanned picture its probably traced in an art program, converted to a usable graphic and then it could be autodigitzed but again with probably not great results
Third, guess trace the design, refine it and convert to a vector file and then manually digitize.
Of course copyright art should not be done this way.
And I think the best design would come from a manually digitized item.
These are my educated guesses but the designers know way more than me and will come along and opine.
But generally speaking its sorta how it could work.

Some fabric designs are copywrited too

Ha! I'd like to know the name of that scanner!

I will check back! Interesting discussion. Live Laugh Download Stitch!

I google the title show and got this link with a video using the flip pal scanner from brother with
Cookie scanning the fabric. I believe this is what you saw?

I see the scanner mentioned but not how she got from scan to digitized design but the project still can be done with scraps of fabric into the quilted pillow. I believe the link for the template is on the other link.

It's only a scanner. Many printers have scanning ability. Most scanned images are of such poor quality you cannot auto digitize from them. Once you have a drawing or a scanned image you have to manually digitize the design to end up with something worth while.If I scan in a design, I trace it in a drawing program to get a quality good enough to work with.

Sorry, didn't see the show, and the links below wanted me to "install" a Magneto, whatever that is, and I won't. I'm running XP, maybe the video needs Windows 7. At any rate, as far as I know, there is no magic way to scan something and have a nicely digitized design pop out. Would be nice magic, but doesn't exist. Most digitizing programs have an "auto digitize" type feature, including my Janome Digitizer Pro, but I've never been happy with what it's done. You have to play sooo much with the original artwork to get the number of colors down & correct that you may as well manually digitize it. And then half the auto digitized stitches are wrong, it doesn't allow for push & pull in the material, etc. Might be ok for some really simple line art, but scanning produces too many colors. What program are you using to try and digitize? Perhaps one of us with the same program could be of help? There's lots of things to understand about digitizing that aren't program-specific, like how to path, compensating for push-pull of stitches, etc. Anyway, I think maybe Cookie did, as you say, skip a LOT of steps in that little demo, whatever it was. Hugs, Marji