This site was inspired by The Usability of Passwords, from way back in Aug 2007. Also read the (more recent) followup FAQ and Reply to the Security Now episode which discusses the original article.
The words used to generate phrases come from a Wikipedia based frequency list. That combined with a length limitation try and keep them easy to spell and remember (even though it decreases the number of possibilities). They're grouped into their word types (verb, noun, etc) via a Wiktionary definitions export (and a few lines of custom code to pull out the needed information). Grammer is based on a few custom made rules that try and generate memorable phrases.
The images are there to help you remember the words - they come from Google Images and are the first result for each word. Safe search is on, so you (hopefully) won't see any outright pornography, but they're not being "approved" by humans, so try and keep a sense of humour if you see anything you find objectionable - computers sometimes have a different way of looking at the world than you might (which often leads to hilarity or confusion on the part of the humans viewing it).
Security is of course the end goal here. We're working from a list of X words, divied up into different word types (nouns, adverbs, etc) and then put together into logical phrase groupings so they "make sense" to an english speaker. Crunching all the numbers (and assuming a worst case scenerio where an attacker had access to the code used to generate this page and the exact word lists, and assuming everyone who uses this page seperates their words with spaces) you can still expect X combinations of words, giving you X bits of enthropy, or about the same "strength" as a X character alpha-numeric password. As well this page is served up via SSL, no logs are kept (except for a simple counter that increments for each pass phrase generated), and the images displayed are cached locally on this server (so we don't inadvertently pass information off to Google).
Some math on word based passwords.