Dropping of certain pixels is a very peculiar way of reducing input quality. Why was that method chosen?

For 3D rendering I guess that's a kind of DLSS, but the paper focuses on video compression.

For video streams that doesn't seem to make sense. Video codecs are not pixel-based, but block/frequency based, so you can't save any bandwidth by dropping pixels. Raw pixels don't compress well, especially less correlated samples like that, so I wouldn't be surprised if sending just the reduced input for this algorithm was more costly than sending a full video stream. And existing video codecs can already very effectively vary quality within the frame by varying block sizes and quantization.