What's the smallest readable font? You need 5×7 pixels to have gaps where they should be. You can go 6 pixels tall if you're OK losing the holes in your lowercase "a" and "e" or the heights. "W" and "M" don't compress horizontally, so things get have to get clever from here. Pico-8's 3×5 font is perfectly legible to most users, though descenders are history. Making a barely-legible 3×3 font is a pixel art rite of passage, though by that point it's hardly type at all. Enter Michael "Code Poet" Pohoreski's nanofont, a 3×4 font with both upper and lower cases, consistent heights and all ASCII symbols!
I know what you're thinking .. how the hell is this font, especially the lowercase 2×2 glyphs, even practical??
Once the novelty wears off a "practical" example would be rendering "in-game book pages" that don't look like complete gibberish, or an "accurate print preview" with real text instead of blurry placeholder pixels that don't even look close to being the glyphs scaled down.
The magic is basically to sacrifice individual glyph legibility and have faith in the power of word- and sentence-level context. It's amazing what you can accomplish if you abandon reasonable presumptions! This reminds me a little of how you can still read text if the letters in each word are scrambled except the first and last—a trick I wouldn't try with NanoFont.
See also the 1-px side subpixel font, named Millitext, and a 3px-wide subpixel font that passes as type. Abandoning latin glyphs allows for trickery-free pixel microfonts such as Dotsies, but now you have to learn a cipher. [via Hacker News]
