The Surprising Usefulness of Sloppy Arithmetic
web.mit.edu
web.mit.edu
"Off by 1% or so" leads me to guess it is implemented by using 8-bit numbers, and not necessarily with any particular sloppiness added by the chips, just the fact that the precision is small. Visual and audio processing could be set up in such a way that you wouldn't overflow those numbers because you know precisely what's coming in. You'd have to be careful about overflow and underflow but, per my first paragraph, you already have to be careful about that. It also makes sense in such apps that silicon would be more profitably used computing more significant bits more often rather than dithering about getting the bits in the 2^-50 absolutely precisely correct, a good insight. I don't know if that's what they're doing because it's hard to reverse engineer back through a science journalist but "8 bit math processors in quantity" -> "science journalist" -> "this article" is at least plausible.
If one wants a Goldberg lite and relevant information organized by programming languages: http://floating-point-gui.de/
http://web.media.mit.edu/~bates/Summary_files/BatesTalk.pdf
In summary: Low-precision high-dynamic range arithmetic (floating point with small mantissa, ~1% error) uses ~100x less power and die area than IEEE floating point. The errors are acceptable for a huge class of applications (basically anything you'd consider running on a GPU today).
So it appears in this case that they are doing what you guess: low-precision, high-dynamic-range calculations using normal computing hardware. But it's not at all clear that errors introduced by floating-point calculations (which are rounding errors, not physical errors) are equivalent--from an engineering perspective--to hardware which accepts physical errors in exchange for performance boosts. It's conceivable that future computing technology will yield dramatic speed advantages on error-prone hardware in a way that no numerical tricks on error-free hardware could duplicate.
All of these claims of increasing performance by sacrificing precision are achieving it by ignoring the tradeoff between rate and precision. It would be the same as if I claimed to speed up a lossless compression algorithm by discarding every other byte while measuring data rate as if I were not losing information.
My point is any tradeoff you can make by losing information in hardware, you can make the same information tradeoff in software.
This isn't something that can be answered purely mathematically (with a Turing machine argument); it depends on the specific physics and engineering realities. The trade-off between precision and error rate is determined by math, but the trade-off between error rate and speed is determined by physics.
For ClusPro (protein docking, http://dx.doi.org/10.1002/prot.22835), we the first stage are rough energy functions for global sampling of the protein surface. For these functions, we use floats because it is a rigid body sampling and is very tolerant to clashes. However, when it comes to the minimization/refinement stage, we have seen weird things happen with floats and instead use doubles.
Similarly, the functions used in early stages of protein folding can probably deal with loss of precision, but the stages for producing high quality structures would not.