WebP sits between the two formats most people know. It compresses better than JPG at a similar visual quality, and unlike JPG it can carry transparency, which PNG does at a much larger file size.
That makes it a good output format for anything going on the web. Nine tiles exported as WebP will usually total less than the same nine as JPG, and considerably less than as PNG if the source has flat colour or an alpha channel.
The catch is encoding support. Reading a WebP is widely supported now. Writing one from a canvas is not universal, and some browsers quietly hand back a different format instead of failing. That is worse than an error, because you end up with files that have the wrong contents for their name.
So the tool checks. After each tile is encoded it inspects what actually came back, and if the browser did not produce WebP it re-encodes as JPG and names the file accordingly. You get working tiles either way, and the format shown in the download list is the format you actually have.
Quality defaults to 90. WebP holds up better at a given quality number than JPG does, so 90 here is roughly comparable to a higher JPG setting.
Sources in any supported format can be exported as WebP, not just WebP ones. All of it happens in your browser with nothing uploaded.