Yes, it is just a demonstration. But that means they're getting close. 

What would be even more impressive is if that sort of capacity was enabled in a production network in Japan.

There's also the growing volume of "cloud" traffic in Japan too, so plenty of metro and long-distance growth to and from data centers adding to the capacity crunch.

NB: Correction -- initially I had super-channels running at 500Mbit/s (not so super) instead of 500Gbit/s. Apologies for that slip-up. The article now has the correct speed. 

And necessary, i would imagine, given the number of FTTH customers in the country.

If you, like me, had to look up PMD, here's a link with a crisp explanation:

http://www.lightreading.com/document.asp?doc_id=159216