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(CNN) -- On Saturday, an entire beach town in Florida will become an interactive work of swirling, hallucinatory digital art.

Organizers call their Digital Graffiti event in Alys Beach, Florida, "the world's first projection art festival." Artists use a variety of technologies to project three dozen original works onto the town's stark white buildings.

This is the third year for the festival, which drew 300 entries from across the U.S. and 17 countries. Submissions include photos, computer-generated graphics, animation and even video -- all of it splashed onto buildings like glowing digital paint.

"I've been a judge since the festival's inception two years ago," said Alan Hunter, a former MTV VJ. "It was a difficult concept to ... understand, even for the developers of the event, but once night fell that first year and you could see the projections on the white canvases of the walls of each of the stunning buildings, we all had a big 'ah-ha' moment.

"There are no specific parameters for what makes digital art, much less what makes good digital art," Hunter added. "This event is still in its infancy, so there pretty much are no rules. As this event grows, artists will begin to produce art with this unique environment in mind."

Event organizer Mike Ragsdale said the festival was inspired by the town's founder, Jason Comer, who challenged his people to create an "extraordinary" annual event that would attract people to Alys Beach, which was founded in 2004.

"My company once wrote video game reviews for Time Warner, and we often tested the games by projecting them onto a huge white wall in our office," said Ragsdale.

"Because the buildings in Alys Beach are white, it occurred to me that our town is like one giant blank canvas. So the notion of fusing together art, architecture and technology eventually evolved into the Digital Graffiti event."

Alys Beach is in Florida's panhandle, an area of the Gulf coast that's been peripherally affected by the catastrophic oil spill. But Ragsdale said the town's beaches remain unspoiled.

About 1,600 people attended last year's Digital Graffiti event, Ragsdale said.

Artists in this year's festival will compete for $10,000 in cash prizes including a $5,000 "Best of Show" award and a $2,000 prize for the "Most Innovative/Experimental Creation."

The event attracts artists, filmmakers, interactive designers, photographers, celebrities and fans of art, technology and architecture.

Festival organizers said they mostly use consumer-grade projection equipment for the event, but do it on a large scale with about 50 projectors in play at a time.

"They are mostly HD-capable LCD projectors designed for small- to medium-size theatre or conference room applications," said event organizer Scott Stephens. "All artist submissions are required in a QuickTime file format to certain specifications for optimal projection."

Artist Dmitry Kmelnitsky of Venice, California, was last year's "Best of Show" winner at the festival. Kmelnitsky submitted a piece called "Lure of the Sirens" which he said told a story of mythical characters traveling through a state of wonder, seduction and transcendence.

His entry combined a dance performance with visual effects and animation techniques.

"I tend to use a variety of visual and audio applications. However, for my entry last year I primarily used Adobe After Effects software for composing visual effects and Apple's Final Cut Pro for editing video and color processing," Kmelnitsky said.

The result is a kaleidoscopic collage of colors, turning the town's streets into a funhouse of eye-popping visual effects.

"Digital Graffiti draws inspiration from film festivals and art shows, but it really moves these somewhat staid genres forward into the digital era," said artist Sean Michael. "Rarely can we say of an event 'you've never seen anything like it.' But in this case, it's probably true."