I'd assume it's fire glass. Here's one possible source: http://flame-creation.com/fcgalaxyblackfirebeads-p-422.html

That's a great looking fire pit! I would also guess that they are either glass beads or tumbled fire glass. We carry both at our website, www.allbackyardfun.com, and both seem to be popular choices based on the "look" you're going for

I have seen fire glass beads, but they always seem to be 1/2" or larger, and the ones in this photo seem quite a bit smaller than that. Maybe it is just fine crushed black lava rock?

It could be crushed lava rock. If you like the look but want a glass, we do carry a smaller fire bead that we refer to as "Eco glass". Each bead is about the size of a jelly bean, and not quite uniform in shape. The advantage of glass verses lava rock is that it adds a modern look and is easy to maintain.

jelly bean glass from American Specialty Glass

How do you get the flame to come out of the gravel like that?

You can either use a H shaped burner or a round fire pit ring depending on the size and shape of the fire pit you are building - http://www.allbackyardfun.com/burners-fire-rings. We would recommend leaving some space between the burner and fire pit walls to avoid burning the side of the fire pit.