That is the technique often used by moderators to make big pictures fit (although we reserve the right to just delete them instead - it is better to get it right first time than to hope you catch us in a good mood / with some time on our hands
).
The drawback is that, although it reduces the size the image is displayed at, it does not reduced the bandwidth requirements. One of the key reasons for having a limit is that if you are browsing on a slow connection, it can take a significant time for a page to load if it is crammed with images that are very large and need to be pulled from a range of external sites.
Wulf