From what I remember reading they use somewhat unrealistic peak power measurements from the battery it's more like 500-600 lumens, which is still beastly for the price. It's a hard value to beat. I'm content with my stella 200 on my head.
More than likely they are claiming the 900 lumen output as that is what the data sheet of the LED claims -
http://www.acriche.com/en/product/prd/zpowerLEDp7.asp
Basically, the LED die (the semiconductor material inside the LED that actually emits light) are made in big batches. These batches yield a range of output intensities, basically following a Gaussian distribution. Some of these are bound to fall on the extreme hi output side of things, ie 900 lumens. Most are probably in the 7-800 range. The company purchasing the LEDs selects a bin, or range of color and intensity values that they can accept, and the LEDs are priced accordingly.
Anyway, back to the point - That 900 lumen LED is measured by the factory and rated at 900 lm. The process involves powering the LED for milliseconds and taking a quick reading. In real life the output will be lower due to heat. In the milliseconds it takes for the measurement to occur, there is essentially no heat buildup, and no intensity degradation. The hotter the LED gets, the lower its' output becomes.
So now the theoretical 900 lm LED is at 800 due to heat. Now that light is directed by a reflector and then shines through a glass or plastic lens. If the reflector is 95% efficient, and the lens is 90% efficient, we have ~685 lumens.
This is in no way a dig at the manufacturer...providing what they do at that price is pretty darn good. Just the reality of how the manufacturers claim the output. I'm sure some of the more well known names do this as well.
I'm curious, how hot does the magicshine get? If you leave it on hi mode and are stopped for -15 min, can you still touch the heatsink?