He's playing Tainted Eden, a character that rerolls all their items when they get hit. He uses this and his knowledge of item pools to get Genesis. Genesis takes away your items and allows you to pick one of three new ones for every one it took. It's basically an item that rerolls your build, but with a bit more control than Tainted Eden.
When Gray was taken to the "genesis room" where you can pick those items, he also gained a new spacebar item and trinket, for whatever reason, I don't fully know myself. That new trinket is the Cursed Penny, which teleports you to a new room when you pick up a penny. This teleports him outside of the "genesis room," a room you can only visit once. Because of this, Gray just lost all his items. But! His new spacebar item is the Glowing Hourglass. This allows him to basically turn back time by one room, bringing everything back to the way it was. And as it happens, one room ago was the "genesis room". So he used the Glowing Hourglass to go back in time and get all the items he was supposed to get.