Photo resizing without changing the original image upload file - various sizes on the fly

SmugMug has what I want for WordPress: http://help.smugmug.com/customer/portal/articles/93264

WordPress has a function for "size" attribute for Post Thumbnails (i.e. Featured Images): http://codex.wordpress.org/Function_Reference/get_the_post_thumbnail

But I was wondering if there was a way to have some settings - not sure where, haven't thought this out entirely - where all images (including CDN images - like S3 or MaxCDN) would be told to be displayed a certain size (e.g. 50x50, 100kb) based on the original file size (e.g. 500x500, 700kb) without actually serving the 500x500 image in a 50x50 area (still 700kb).

I'm not sure if it would be best as a custom field per post (so each post could display differently) or as an entire theme setting in functions.php (maybe with options/custom field choices of O, XXL, XL, L, M, S, Th, Ti, like SmugMug's - or 100%, 50%, etc. if all the uploads are the same size).

I don't know exactly what this would look like implemented, but I like the idea of generating image sizes on the fly instead of having multiple file uploads per image to serve different purposes. Maybe this is already in the works with WP 3.3 or in the future?

Thoughts, ideas, example use cases? Please help me hash out this idea.

Thanks.