WebP is a lossy compression method proposed by Google. The degree of compression is adjustable so a user can choose between file size and image quality. WebP typically achieves an average of 39% more compression than JPEG without loss of image quality.
You can check gallery that compares JPEG and WEBP (The WebP images are more than 30% smaller than the JPEG ones): http://code.google.com/speed/webp/gallery.html. The only problem with this method is bad browser support. At this time it’s just Google Chrome 9+ and Opera 11.10 beta.
You can create WebP images in ImageMagick, and XnConvert. You can also use WebP command line utility to convert.
Find more information about WebP: http://code.google.com/speed/webp/
It’s interesting stuff and I would want to have it implemented but I guess many years will pass till we get proper support of WebP in all browsers.