.PNG is not a replacement for. JPG, but instead is a replacement for. GIF.  .PNG files can have transparent backgrounds and are well optimized for icons, clipart, or other smaller images.  JPG is better suited to pictures.

As for the thumbnails, that is probably Nautilus or a image viewer doing that so that it can cache the preview so it does not have to calculate it on the fly.  Making small previews is an expensive operation, so the system caches them.  If you delete it, the system will recreate them if you preview that directory again.

Kevin