This article is from the VW Technical FAQ, by with numerous contributions by Jan Vandenbrande others.
A: From Larry Keys:
They're really, hush, hush, about it. They only describe their method
as "the process". I'm almost certain that no magnets or hammers are
used, since the paint is perfect and so is the smoothness of the metal.
Someone posted on r.a.driving, that the process is actually an old one
that's been around since the 50`s. Anyway, he went on to say that this
process is used on airplanes to remove hail dents. The poster said that
the metal skin of the plane was allowed to heat-up, or was heated, then
dry-ice was applied to the area. Something to do with the expanding and
contracting properties of metals?
Jan: I had them take out a couple dents in my car, and all they did (in
my case) is use a set of blunt tools to massage the dents of the inside
panels out.
 
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