This effect is completely scripted, taking advantage of the Flash MX drawing methods. Each transition consists of a different set of random circles making the effect more interesting when shown more than once on a website.
The basis of the script is an algorithm which divides the rectangle of the image into a random number of smaller rectangles. This algorithm is illustrated in Divide & Conquer.
A mask is then used with a circle on each square that grows to completely cover it or shrink from full size depending on whether the image is revealed or hidden.