Yes! There is a reason behind it and we just didn't know it. There is still a couple of issues but it's not what we thought.
This is how it works.
1. Every product has a FULL IMAGE and a THUMB IMAGE. They BOTH are placed in "shop_image/product". If you're like me, you let VirtueMart auto create the THUMB, but remember that you can manually upload a different image as a THUMB.
2. THUMB image is what is shown in FLYPAGE. When you click on it, you can see FULL image (usually in lightbox).
3. If you DON'T check "Enable dynamic thumbnail resizing", in BROWSEPAGE you'll see each product with its corresponding THUMB.
4. IF, and only IF you CHECK "Enable dynamic thumbnail resizing", in BROWSEPAGE you'll see a RESIZED version of the THUMB. A thumbnail of the thumbnail. This RESIZED version is dynamically created when you browse that category (of course, once created it is used from then after).
*** Issues ***
a) If you use "Auto thumbnail creation" the resized thumbnail is created immediately, and NOT when you browse the page
b) If you use "Auto thumbnail creation" the resized thumbnail is created EVEN if the setting "Enable dynamic thumbnail resizing " is OFF
Easy, huh?