I don't know if it really is the smallest camera in the world like makers Hammacher Schlemmer claim, but it's probably the smallest camera that looks like a camera! It's powerful 2 megapixel sensor can capture still images at 1600 x 1200 resolution and captures video at 30 fps at 640 x 480 resolution. It even has built-in autofocus!
The Hammacher Schlemmer mini camera looks to be based on the Chobi Cam One, but may be a tad smaller. However, the Hammacher does not accept interchangeable lenses like the Chobi Cam does. Yeah it's silly, but it would make a great gag gift for that photographer friend in your life. It may be a tad expensive though, originally selling for $100 but now marked down to a raging fire sale bargain of $60.
Images are taken as JPEGs and videos as AVIs, both saved onto an included 2 GB microSD card (supports up to 32 GB cards). Images and video can be viewed when connecting it to a computer running Windows 7, XP, or Vista using the included USB 2.0 cable. Rechargeable battery provides up to 30 minutes of operation from a one-hour charge via USB.
And, like I mention above, it takes video! It's almost as good as the Barbie Camera...