This looks like a paint program function that has been isolated. Plain "Smudge", that is.

If you'd like to play around with this, you need to manipulate the bitmap that is used to build the image. Finger touching is like mouse clicks. After that you need to figure out how to "move" parts.

At least one paint program has been ported to Maemo5. If you look in the source for that you might find what you need.

Just remember that multi touch isn't possible, as far as I know.