The idea of combining images into a larger one and displaying this using CSS tricks has been around for awhile. There are a couple big benefits to doing this: First it reduces the number of HTTP requests that the browser has to make, by combining say 5 images into 1 big image, the number of image requests has been reduced by 4. This can increase the effeciency of page loading and you can see gains in the speed at which your page is loaded. 

Some usefull links:

http://www.alistapart.com/articles/sprites/

http://stylemeltdown.com/2007/10/22/image-sprite-navigation-with-css/

http://www.askapache.com/css/speedy-sites-with-image-sprites-and-css.html

http://paulstamatiou.com/2007/07/25/how-to-optimize-your-site-with-image-sprites

http://websitetips.com/articles/css/sprites/

CSS Image Sprite generator:

http://spritegen.website-performance.org/

http://www.mummey.org/2008/12/csprites-a-dynamic-css-sprite-generator-in-php5/