UPDATE: A few people have asked, so we’ve released the source code for the tool in the download links below. We’re unable to make any modifications to it, as we’re no longer developing the tool internally, but feel free to modify it for your own needs, and contact us if you need any help with it. Unfortunately, the code isn’t the tidiest code around. Please note that all source and binary code is provided “as is”, without any warranty of any kind. Please see the website usage terms, at the bottom of the page, for more information.
A texture atlas, or sprite sheet, is a single image containing a number of smaller textures or sprites. This is useful as it is more efficient for the graphics card to process (it doesn’t have to keep switching textures when drawing different textures, as it can just use the single texture and sample from different parts of it). It is also faster to load into RAM, as you are only loading in one image, as opposed to several smaller ones, so the loading can be done in one stage.