The extension works by inserting a new CSS rule on the body of a twitter page based on the settings you choose. When you 'upload' the background image to the extension, it actually converts it into a Base64 representation of the image and stores it locally in your chrome extension storage.
This Base64 data is then inserted into the page using the background-image: url() method - which solves the problem of being unable to pull an image from an extra-twitter location (whether it be from another hosted source or from the local machine).
