yeah that current implementation is wildly poor. i imagine if they really wanted to, they could come up with an optimization and quality threshold that should alleviate this concern.
to show placeholders for an image when the internet is too slow to load the image itself fast enough. the implementation they use is extremely inefficient though so it's not much of a win unless the images they're downloading is very large. in most cases, depending on how they load their css, it will actually increase the amount of time it takes to load the images.