... _and_ a still photo. You don't lose the full-resolution still photo, and the still photo isn't simply a frame from the video. In case anyone's curious.
Wait isn't the magic here that you do exactly that; choose your still photo from the video - thats what you do with the timeline picker in ios?
In other words the video is exactly the same quality as the photo in each frame so you can pick a moment a second later for example if you film something fast moving.
Does anyone know how it works and isn't gigabytes in size?
The stills captured in video are significantly lower quality than the still image at the heart of a live photo. The few frames of captured video and audio are to provide "live" context, not to let you choose the best shot. It was never intended as a burst capture tool, the iPhone has a separate burst mode by holding down the shutter button that works sort of how you are describing, and will provide a rapid burst of much higher quality stills.
You can change the keyframe on a live photo (ie the image displayed first) from the still capture to a video frame, but I generally would never do this due to the quality drop. It adds a little more memory context to a still photo, its not a burst capture tool.
There are actually some features with live photos I hadn't seen before though that are kind of interesting, for example you can fake a long exposure shot via a feature that interpolates information from the video stills into the main image:
This is true. Easy verification: hold your phone still and take a photo of a tree at some distance. Go to “key photo” selection scrubber. Zoom in on leaves. Scrub. Observe the quality significantly decreases when not on the preselected position.
... _and_ a still photo. You don't lose the full-resolution still photo, and the still photo isn't simply a frame from the video. In case anyone's curious.