in that file, it sets the thumb and large image sizes by a line that looks like:
$gallery = get_gallery(get_mediarss_url('gallery=' . $pg_id . '&thumb=62c&full=782p'));
in this case the thumbnail is using the 62w x 62h cropped image, and the 782w x 481h proportional image.
Yes, the images will be resized by on upload automatically and re sampled, regardless of whether the original image size matches what is used.
Thanks, Jason. I was working on images and didn't know you posted this. I will print this out and keep it in mind if I need to change the code.