So, am I to read this as to mean that when I send Dropbox a JPEG, they are behind the scenes further compressing it using Lepton? Then when I request it back, they are re-converting it back to JPEG?
That's the idea behind the algorithm, yes. And since it's lossless, every original bit is preserved. The same idea could be applied on the Desktop client instead of on the server, which would save 22% of the bandwidth as well and make syncing faster.