It could be similar to how you can build a PDF. They could just take your HTML and then use that to build a .JPG. I'm sure it's a very *expensive* process (server & CPU -wise) though.
There's an addon for LiveStats (www.mediahouse.com) that does this so it can display thumbs of pages on your site in its reports. It runs on Windows and appears to load the page in and embedded IE instance then takes a screenshot.
-- Stuart
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