I couldn't tell you the technical reasons, but yeah same concept: Break the source data in just the right way that the end result is interpret-able, but with interesting defects. There is a bit of an art to cutting and pasting and sculpting the data in just the right way. You get a feel for it after a while.
That's pretty much it. Apparently the format optionally supports compression and even transparency, but last time I used paint it didn't do any of that, which is why the files were so massive.