From Valve Developer Community
The Source Filmmaker Beta (2012) is a powerful tool that works with the Source engine to create a flexible, modifiable 3D recording that can be exported as a movie or as a still image. The 3D recording you create in the SFM can contain recorded gameplay, objects, cameras, lights, particles, animations, effects, and sounds—and the motion information for how each element changes over time.
With the SFM, you can essentially film "on location" in your favorite TF2 map—whether it's one that Valve released or one that you modded yourself. You can use the SFM's large library of maps, models, animations, objects, sounds, and effects, or you can import your own. Because you're working with a virtual world, and your recording stores all the 3D motion data about every element, you can modify any aspect of the recording at any time, which makes it easy to make the kinds of last-minute changes that would be extremely expensive in a live-action studio.
The SFM is the movie-making tool built and used by Valve to make movies inside the Source game engine. It's how we've been making all of our animated short movies. By using the hardware rendering of a modern PC gaming machine, the SFM allows storytellers to work in a "what you see is what you get" environment so that they can iterate in the context of what it will feel like for the final audience.
There is a caveat, though: despite the deceptively simple UI, this is a very powerful and complex tool without a lot of safeguards. Think of it like a tractor: it doesn't have railings or a lot of padding like you might find in a normal app or game. We recommend that you watch the video tutorials first and then read the documentation to familiarize yourself with the tool as much as possible before you dive in.