Why host images on a separate subdomain?

A separate domain prevents your domain’s cookies from being sent for every image request, where they’re not needed. Reduces the bandwidth overhead for each request.
Most browsers will only make a certain number of HTTP requests at one time to a particular domain, so serving images and other static content off a second domain potentially doubles the number of HTTP requests at one time.
You can conceivably use a different, lighter weight webserver like nginx/lighttpd to serve the static content.