Earlier quoted context omitted.
Oh nice, I've been thinking about something like this a lot lately. I don't really like the idea of truncating the generated password, though. I'd rather it use a proper KDF and fill the password field to its limit.
I think the reason they did it is because a lot of sites have maximum password lengths that would prevent the full output. Those are exactly the type of sites that you want to be using something like this on.
From looking around it seems like the reason is that they wanted the visual representation of typing the password to reflect the number of characters you actually typed as you type them. I'm not sure if this comes out true, though, as I can't actually get it to work in chrome.