A Playstation forum user took an excellent picture of the camera, detached from the PSP. He put a nickel next to the camera, just to emphasize its size. Look at how small it is! He also captured a video, and posted it for everyone to see. As you can tell, the video quality isn't too great: it's comparable to a camera phone's.
PSP-Vault also discovered an anonymous 2ch user who created a really awesome short film, using Chotto Shot's built-in stop-motion animation feature, and the various film and sound effects that are included. For those that are unfamiliar with stop-motion animation, it involves taking still images, and moving objects within them slightly. After enough pictures are tied together, it gives the piece the illusion of animation (Example: Wallace & Grombit used stop-motion). The film ends with a cute quip at the end in Japanese, saying it took one hour to make. That sounds pretty fast to me, considering how well-produced this seems. The video is available in its original format for playback on your PC (480x272).
The video has also been converted into a PSP-compatible file, and can be downloaded directly to your PSP, from your PSP (via m.pspfanboy.com):
Also, it appears as if a service called "Ameba Vision" has just launched in Japan. Ameba Vision allows PSP camera owners to upload the videos they've created with their cameras to the web to share with friends. Strangely, this reveals one of the camera's greatest flaws: you can't share and playback videos between PSP owners directly. The camera records the video in a file format that other PSPs won't recognize without the usual file conversion. Without the Chotto Shot software, other PSP owners won't be able to watch your videos on the system. Lame! Hopefully, a future firmware revision will free up the PSP's heavily restricted video playback. Maybe, hmm... around the PLAYSTATION 3 launch? Hmm, that'd be nice. It would also be nice for Sony to release this peripheral outside of Japan. Please?
[Thanks, Joel! Via PSP-Vault]
[Update 1: Added more info about the camera's size. Included new video from Playstation forums.]