Yeah, it's a PDF file kept in your iTunes directory, then you open it via iTunes (or manually if you want to) and it opens it in your default PDF browser.
Just a few albums with digital booklets are Lady Gaga's "Born this Way" Deluxe, Natalia KIlls "Perfectionist" Deluxe, and Pistol Annie's "**** on Heels"
Also, something new is the "iTunes LP" which is even better... It's a more interactive digital booklet opened by iTunes itself that in many ways is sometimes better than the CD insert.
An example of this is Avril Lavigne's "Goodbye Lullaby" Deluxe Edition. You are able to listen to songs via a nice interactive menu, look at a photo gallery of Avril, discography, and full song credits. No lyrics on this one, but some do.
Then even have movies with this feature! Like for example Red Riding Hood (Alternate Cut) gets you the alernate cut of the movie, plus ALL the special features you find only on the Blu-Ray copy of the movie (the only advantage to the Blu-Ray then is you get both versions of the movie). Another example is Bad Teacher (Unrated) and Sucker Punch (Extended Edition)
As for data in the files, yeah iTunes AACs can do that too, but again that increases file size (in fact, many people check an option to "remove album art" when syncing with their iPod to reduce file size)