From Pink Tentacle, an excellent blog about all things Japanese:
According to the Yume-Neko Smile homepage, the cuddly robot makes a suitable alternative for anyone unable to keep a real cat. Five sensors at different locations on Yume-Neko’s body allow you and the cat to engage in tactile communication. Pet Yume-Neko Smile on the head and it starts purring and flicking its tail around. Stroke its back and it starts to get sleepy. Yume-Neko also likes it when you touch its cheek, and it apparently enjoys being flipped over on its back to have its chest stroked. The cat gets mad when you touch its tail, though, so be careful!