The sounding elements here are 3” tubes with one end covered by a lightweight plastic diaphragm, forming something like a tube drum. From the center of each drum’s diaphragm comes a short string looped at the opposite end around a small wooden spool on a short axle. When the spool turns, the friction between the spool and string creates a stick-slip vibration which is transmitted through the string back to the diaphragm. The diaphragm acts like a drumhead radiating sound into the air and also activating the tube’s air resonance. The spool is attached to the side of a larger wheel (the most conspicuous aspect of the instrument visually) which makes it easy to do the turning by hand. The tubes are graduated in length and their air resonances provide the sense of pitch. There are ten such tube-string-spool assemblies on the instrument, making a diatonic scale over a range of an octave and a third.

In the audio clip, Spools & Wheels is joined by Cubist Bass, Suction Pops, Needs-a-Name, a set of bamboo percussion bars, and various additional percussion instruments. 
In addition to the video linked below, this instrument can also be seen here

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