  We study the physical processes of the PSR B1259-63 system containing a 47 ms
pulsar orbiting around a Be star in a highly eccentric orbit. Motivated by the
results of a multiwavelength campaign during the January 1994 periastron
passage of PSR B1259-63, we discuss several issues regarding the mechanism of
high-energy emission. Unpulsed power law emission from the this system was
detected near periastron in the energy range 1-200 keV. We find that the
observed high energy emission from the PSR B1259-63 system is not compatible
with accretion or propeller-powered emission. Shock-powered high-energy
emission produced by the pulsar/outflow interaction is consistent with all high
energy observations. By studying the evolution of the pulsar cavity we
constrain the magnitude and geometry of the mass outflow outflow of the Be
star. The pulsar/outflow interaction is most likely mediated by a collisionless
shock at the internal boundary of the pulsar cavity. The system shows all the
characteristics of a {\it binary plerion} being {\it diffuse} and {\it compact}
near apastron and periastron, respectively. The PSR B1259-63 cavity is subject
to different radiative regimes depending on whether synchrotron or inverse
Compton (IC) cooling dominates the radiation of electron/positron pairs
advected away from the inner boundary of the pulsar cavity. The highly
non-thermal nature of the observed X-ray/gamma-ray emission near periastron
establishes the existence of an efficient particle acceleration mechanism
within a timescale shown to be less than $\sim 10^2-10^3$ s. A synchrotron/IC
model of emission of e\pm-pairs accelerated at the inner shock front of the
pulsar cavity and adiabatically expanding in the MHD flow provides an excellent
explanation of the observed time variableX-ray flux and spectrum from the PSR
