Earlier quoted context omitted.
Why pipe to md5sum?
I could just pass an option to make pwgen generate longer passwords, really, but I find amusing the idea of generating the hash of 160 urandom level generated passwords :) Now that's random! Oh, and also, it looks like a hashed password, so special troll points if a cracker find the password and think it's its hash. (note for people who may not know pwgen : it outputs 20 lines of 8 random passwords)
Unfortunately, it only does this if STDOUT is a TTY. If it's a pipe, then it outputs a single 8 character long password. So I'm afraid you've been generating rather low entropy passwords by piping the output of pwgen through md5sum.
You can confirm this by piping pwgen through cat: pwgen | cat