I love the concept, but I'm extremely skeptical that the dithered PNG images are smaller than a (much nicer looking, but lossy) JPEG. It's fine if that's the aesthetic they're going for, but it doesn't seem like it would reduce the server load...

For the record, one of the 640x480 PNGs is 41 KB, and I just saved an elaborate, full-color (and higher resolution) JPEG at a smaller file size (quality was around 50, I think). The JPEG looks completely fine on my (normal DPI) screen.

Edit: It does look like they scale up the PNGs (at least when I view their site), and lossless images definitely scale better. Maybe that was the motivation.