My first encounter happened during a discussion with a Japanese customer at my previous work-place. He was writing down all the minutes himself and in between, I would see him erasing with the pen. I was amazed! It was better than even a pencil as it left no trace at all!
Since then, I have been curious to find out how this technology works.
The special ink has 3 pigments, let us call them A (color pigment), B (color activating agent) and C (transparency agent). When we write with these pens (at room temperature), A and B are bonded together and hence we can see the pigment. When we rub with the eraser, the eraser generates friction between the writing surface and itself which creates high temperatures of over 60 deg C which leads to B separating from A and binding to C.
A nice video of the technology can be found here:(first 2 minutes).
In fact, this question has also resulted in interesting classroom demonstrations of thermodynamics and Kinetics:
Demonstration of Thermodynamics and Kinetics Using FriXion Erasable Pens
Dean J. Campbell, Wayne B. Bosma, Stephen J. Bannon, Molly M. Gunter, and Margaret K. Hammar
Journal of Chemical Education 2012 89 (4), 526-528 | DOI: 10.1021/ed100831p
They have a very cool (or hot & cold ?) demonstration video of the same: http://pubs.acs.org/doi/suppl/10.1021/ed100831p
The only downside is that once the ink is set, if the material with the ink is exposed to temperatures greater than 60 degC, such as in a car on a hot day or even putting pages through repeated photocopying, can heat the paper sufficiently to make the ink disappear. The solution is simple, keep the papers at a temperature of below -10 degC for a while. At that temperature, the thermo-sensitive ink will reappear! (Ref: Pilot FriXion FAQ)
Try it! Even after I understand how it works, it still feels magical to see ink disappear in front of my eyes!