From http://www.nic.com/~cheah/hole.html : "On many Unix filesystems, files containing long strings of nulls can be stored much more efficiently than other files. To be specific, if a string of nulls spans an entire allocation block, that whole block is not stored on disk at all. Files where one or more blocks are omitted in this way are called sparse files. The missing blocks are also known as holes."

That makes possible e.g. to have a 1TB file on a 1GB partition, provided that the file is filled at 99.9% with nulls. Anyway, the image of the partition is initially a sparse file (which means that it takes effectively 0 space on disk, even if it looks like a file that is as big as your whole partition !), and the effective size (i.e. size taken on disk) of the image will grow up as the files are moved into that image (which on the other side will free space on the partition, thus the total space used on the partition is almost constant)...