In iWeb 1.0, when you added images to your page they would be converted to PNG format images when published. PNG is a format which allows for image transparency to be displayed in your web browser. However, the downside is that this image format takes up more disk space than a compressed JPEG.
Enhancements in iWeb 1.0.1 allow for most types of images and photo page thumbnails to be published as JPEGs where possible. This translates into faster page loads when people visit your website.
To take advantage of this change in an existing iWeb 1.0 site you'll need to republish all of your pages. To do that, hold down the Option key and from the File menu, choose Publish All to .Mac.