Available for LabyMod users with version greater than 3.7.7
LabyMod has a cache for the player tab-list. If you want to spawn a NPC, you have to add it to the tab-list to make it visible and remove it again to keep the tab-list clean. With LabyMod you can add the NPC to the tab-list and remove it in the same tick again. The client will remember the information and use it when you spawn the actual Player entity.
In the video you can see that the server removes the NPC-names in the tab-list and then the actual NPC-entities appears. If you try to reproduce this in vanilla Minecraft, you will see that the skins of the NPC's are not loaded after turning around.
If either the most or least significant bits of the player's UUID is set to 0 and the display name starts with "§8NPC-", then the player is not displayed in the tab list.
Be careful not to accidentally spawn the player in your game mode without using the tab-list, because with LabyMod the player becomes visible anyway.