He's not talking about an ANCD or other transfer device. He's talking about our Common Access Cards (CAC), by which we authenticate to DoD resources on the Web. The CAC has an encryption chip embedded in it, as well as some storage for certificates. I have a Smartcard reader attached to a USB port on my computer. When I need to get into a military website, I place my CAC in the reader. Windows 7 and 8 have built-in drivers for smart cards, and the web site will send a request for authentication to my computer. It will intercept the request and ask me to unlock my CAC. I enter my PIN, the CAC does it's PKI thing with my private certificate, and I have access to the website.
Most, if not all, federal agencies are moving to the Multi-factor authentication model, where we not only have to have the "something I know" piece, but the "something I have" piece, in this case, the CAC.