First you need visit the Settings page and check "Allow me to upload photos by email." The secret email address where you can send your photos has the following format: username.secretkey@picasaweb.com, where secretkey needs to be defined in the settings.
By default, Picasa Web uploads your photos to the built-in Drop Box albums, but it's a good idea to choose your destination by entering the name of an existing album in the subject of your email.
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Make sure you don't share the secret email address with other people, like I did in the screenshot above. And if you do, just choose a different secret key for your address.
You can attach up to 20MB of photos in JPG, GIF and PNG formats, which is a pretty reasonable limitation. Since Picasa Web's mobile site still doesn't support uploading photos, the new option should be really useful when you want to share photos from a phone with email or MMS capabilities.