On page 48 of the guide, it says "when syncing photos with iPad, iTunes automatically creates a size optimized for iPad, if necessary." That is clear and it is implied that if you transfer them any way other than syncing, you are on your own.
Yes, it works great when syncing from a laptop/desktop with iTunes. I was hoping for a way to transfer from camera to iPad with the same shrinking feature without having to carry a laptop on trips.
I guess I just need to be more patient, lol. I do something in photoshop to most of my pics anyway, so I might as wait until I'm through editing to put them on the ipad - I'll be wanting to replace them later anyway.