Volkswagen isn't reinventing the way your internal combustion engine works. The automaker has, however, created a new twist on the Otto cycle that's a revised version of the Atkinson cycle.
Your standard Otto cycle is the one with which you're most familiar. It's made up of intake, compression, combustion, and exhaust. The Atkinson version of this cycle involves leaving the intake portion of your 4-stroke process open for a bit longer so it carries over into the compression stage. What Volkswagen has done is create a new version of this, and it's called the Budack cycle.
Let's back up for a second though, because you need to know why the Atkinson cycle is important first. By allowing the intake valves to stay open longer than during a standard Otto cycle, the engine compresses some of the air in the piston chamber out. Doing so lowers the compression ratio and allows for a more efficient combustion stage.
The Budack Cycle is similar in that it alters the timing of the intake valves. However on Volkswagen's EA888 engine, the Budack cycle closes the intake valve earlier than on a standard engine. This also lowers the compression ratio, and does so at the sake of power production. However, it results in a more efficient combustion process and improves fuel efficiency. So it's similar to the Atkinson Cycle, in that it achieves a similar result by altering intake valve timing.
Volkswagen didn't simply cut the available power of its Budack cycle engines. There's variable valve timing afforded here, which lets a driver press that throttle pedal down and see more power on tap. The intake valve timing moves to a standard cycle and you get more power when you want it. The engine moves between operating cycles as dictated by the need for power or fuel efficiency based on the driver's throttle input.