The rounded corners are accomplished using only CSS. They will render in modern browsers such as Chrome, Firefox, and Safari. The rounded corners won't be picked up by IE however.
DW design view won't render the rounded corners, but if you switch to Live view it will.
The buttons are created in a similar way using just CSS for the rounded corners, padding, and hover effects. You can take a look at the PowerGallery CSS to see the code it is using.
Here is some more info about the CSS needed to round the corners without using images: