According to Blogger Buzz:
This feature lets you add a slick little slideshow of your photos from Picasa Web Albums, Flickr, Photobucket, or any site that supports Media RSS.Nice one
The photos will show up in your blog’s sidebar, gently fading into one another. Your readers will be able to go forward and backward, pause, and click through to the photo’s web page.
You can also make a slideshow of public photos based on a tag or label.