While I'm not certain what the exact species of owl this is (while it looks kind of like a North American screech owl, I think it's a scops owls based on pictures on the Owl Pages) I know exactly what this little "Transformer owl" is doing.
When faced with the barn owl, which is only slightly larger than itself, the Transformer owl puffs itself up to look as big as possible in an effort to scare the barn owl away.
When faced with the second, much larger owl, however, it does the exact opposite. By elongating its body, flattening its feathers and squinting its eyes, this little owl mimics a dead branch in the hopes of camouflaging itself from the larger bird. It's a pretty amazing and odd-looking adaption, wouldn't you agree?
Thanks go to Jade Beinvenu for sending me the link to this video.
UPDATE 5/13/10: Thanks to reader Raymond Ho's research, it looks like the owl is Ptilopsis leucotis, which goes by the common names northern white-faced or white-faced scops owl.