That image is the punchline to the question I awoke with in the middle of last night: "How the FLIPPIN' 'ECK did that guy do destructible terrain for DHTML Lemmings... in 2004?!!!". I lay there for some time as thoughts raced through my mind: There was no canvas element in 2004. No WebGL. In fact, there was no direct pixel access of any kind! (Not counting black and white XBM images, which had been killed off by then anyway).
Eventually I was forced to get out of bed and take a look. The answer, as pictured above, was a piece of creative brilliance: each level is a simple jpg image that sits in the background. As diggers dig down they add "holes" - small black images - to the page. every few pixels dug requires a new hole image.
Destruction via creation! That's the kind of lateral thinking that'll get you places.