The Droste effect is the modern name of a recursive visual effect most famously used by the artist MC Escher. There are hundreds of fantastic Droste effect photos in the Flickr pool "Escher's Droste Print Gallery." You can create your own by following Flickr user Pisco Bandito's tutorial. (Seen here, Bandito's "I've Opened Myself To You.") From the Wikipedia entry on the Droste effect:
The 'Droste effect' is a Dutch term for a specific kind of recursive picture, one that in heraldry is termed mise en abyme. An image exhibiting the Droste effect depicts a smaller version of itself in a place where a similar picture would realistically be expected to appear. This smaller version then depicts an even smaller version of itself in the same place, and so on. Only in theory could this go on forever, but practically it continues only as long as the resolution of the picture allows, which is relatively short, since each iteration exponentially reduces the picture's size.Link to Escher's Droste Print Gallery on Flickr, Link to Droste Effect Tutorial (via Neatorama)
The term was coined by the poet and columnist Nico Scheepmaker at the end of the 1970s. It is named after Droste, a Dutch brand of cocoa, whose box has a picture of a nurse carrying a serving tray with a cup of hot chocolate and a box of the same brand of cocoa.