The mechanism and dynamics for the formation of a hydrogen molecule in the cavity of POSS (polyhedral oligomeric silsesquioxane) compounds have been investigated by ab initio molecular orbital and ab initio molecular dynamics (AIMD) methods. The host molecules are two POSS compounds, T-8 ([HSiO1.5](8)) (O-h) and T-12 ( [HSiO1.5](12)) (D-2d). To investigate the H-2 formation reaction, two approaches were considered: trajectories were initiated by inserting a second hydrogen atom into (I) a hydrogen molecule encapsulated-POSS (H + H-2@T-n -> (H + H-2)@T-n; n = 8, 12), and (II) the hydrogen atom and hydrogen molecule-encapsulated-POSS (H + (H + H-2)@T-n -> 2 H-2@T-n; n = 8 and 12). A wide variety of reactions were observed depending on the system and the initial conditions, especially in process II. Therefore, for reaction II, an energy decomposition analysis was employed to examine the variation of the distribution of the translational, rotational and vibrational kinetic energies of the guest species along the reaction processes, and to determine the role of each energy component for the H-2-formation. This analysis provides important insights into the expected kinetic energy distributions among the products of encapsulation reactions.