Pneumatics is like hydraulics except with air instead of special fluid. You have a tube that doesn't flex a lot, and an air pump at one end, and at the other end you've got an attachment to whatever you want to move.
Its kind of like a bicycle's brake cables, the outside of the cable is attached to something that doesn't move, and a little piston inside the pneumatic tube is attached to what's getting moved.
I don't know exactly how the real systems work, but a simple one would be something like this:
In a manual tranny, you've got an H of gears, so you'd need at least two actuators.
So to get from first to second, the computer would send 1/2 power to the up/down actuator, bringing the gear lever to neutral, then send it to full power to bring it all the way down to 2nd. To get from 2-3, the pneumatics for the up/down go to 1/2 power and bring the lever to neutral, and then left-right pneumatics go to 1/3 and the lever slides to between 3/4, then the up down goes to 0 and it goes up to 3rd.
I'm certain the "real" system has nothing in common with this, but that's one way it could work. The good part about pneumatics is that they're pretty powerful and very fast, and you can get good control of where and how hard you're moving things. Also, air is light
I dunno if McLaren is using pneumatics for their transmission and/or their valve timings. A lot of race and prototype cars are using pneumatics to move the valves up/down in the engine so the computer can imitate cams of various sizes/profiles quickly.
Its kind of like VVTi or VTEC or whatever they're called, where you can have one cam setting when you're acellerating, another when you're braking, etc.
Pneumatics are used because they're
fast, but as you said reliability is an issue.
And remember that SMGs are new features on rally cars, the Old School cars didn't even have engine computers! At one point, all-wheel drive was revolutionary
Of course you couldn't drive a regular manual in a modern WRC race, but plenty of non-WRC rallies happen all the time with regular manuals. Group-N is the FIA's lower-end rally series, and a Group-N car is pretty easy to race all over the world. It has the same 2.0 litre restriction as WRC and also requires that all parts be on the same list, so all Group-N Imprezas, for example, are basically the same, so its more about the drivers than the cars. SMGs aren't to my knowledge currently homologated for Group-N, but I don't really know for sure.