It's a little CSS trick to maintain the slideshows aspect ratio whilst being responsive/resizing. A few other slideshow scripts employ a similar principal.
Padding-top percentages used in this manner are relative to the slideshow's width. So for your particular slideshow, based on the dimensions you've set it too, the height is 27.35*% of the width.
If the slideshow starts to resize and its width gets smaller, the height will remain at 27.35*% of the width, thus resizing whilst maintaining the aspect ratio.