The server takes care of handling the image and resizing into different sizes.
Those you can choose by manipulating the URL.
The size doesn't necessarily need to be a multiple, but any size. As it's by proportion.
s1600 is the original uploaded image size, and it's the limit, as the server only scale the image down.
This is useful if you have a big image, upload it to Blogger | Picasa and just manipulate the size through the URL.