Tiny bicycles have been around for a long time, mostly for amusement:
The original mini bike
Enter functional tiny bicycles: Minivelo bikes originated in Japan and Korea, where bicycle commuting is very common. They are a combination of 20" wheels and standard geometry. These are bikes that have acute handling, fit in small places, and are light weight. This all adds up to a great city bike. These bike are available from economical:
Mercier Nano - $300.00
...to the excessive:
Bianchi Mini Velo - $8000.00
To the agressive!
Cannondale Hooligan - $1000
The market for these is blowing up. People looking for something capable bicycle for running errands and easy transportation in a conveniently small package. It's the bicycle version of of a VW Beetle. Check out more pics here.