This is a new graphical technique that was intruduced with Episode 1 along with HDR. I found a wiki on the .vmt command here:
http://developer.valvesoftware.com/wiki/Phong
But Im wondering how to use it. Unfortunately I still cannot get into the EPisode 1 materials to extract.
Its basically a reflection technique used best with normal maps in source.
It looks really interesting judging by speculars in EP.1, so if anyone has any knowledge at all about the .vmt information about please share.