I recommend Sam Harris's "Waking Up" for a decent discussion of this topic in general, and of Poonja (Papaji) specifically. The relevant part of the book is Chapter 4 "Meditation", specifically starting on page 127 (hardback).
Based on Harris's account, which is both respectful of Poonja but also healthily avoids being overly credulous, I'd say that the answers to your questions are:
- Yes, it can be true, but not everyone who appears to be experiencing it actually is. In other words, sometimes laughter is just laughter.
- "How" as a mechanism, I don't know. I'm not sure anyone does. But if you read past the Poonja stuff and onto Harris's description (same chapter) of the "pointing out" aspect of Dzogchen, particularly as he experienced it under Tulku Urgyen, you'll get some clues.
- Similar to the answer to the first question: I imagine that in some cases a genuine awakening experience is present. However, as Harris explains in the section on Urgyen, even the genuine experiences may be only a first look at what is possible with more extensive and deeper practice of insight
Also, as ChrisW says, Poonja isn't formally Buddhist. I think he'd be more accurately described as an Advaita practitioner, although even that may be more precise than is fair (to Poonja or Advaita).