It is smaller then data urls becausde the base HTML and javascript is provided by the itty.bitty server and not part of the data url. Only the inner content is encoded. So it is much smaller then a data url but requires a server to serve the initial decoding HTML page.
The base HTML/javascript coming from the itty.bitty server does not make it smaller. As a matter of fact, it appears that the javascript provided by itty.bitty simply decompresses the URL fragment and then converts it into a data-URI and passes that to an iframe.
So it is smaller than a data URI - but only because it is compressed.
