Considering the relatively low cost and size, I'm guessing there are two key factors:
1- high availability of screens with that somewhat bastardy resolution at that size
2- falling demand for that resolution on laptops due to more people demanding full-HD (if you can have 1080p on 4-7" screen for as little as $200, why settle for any less on a 16" one?)
If you have a large supply or inventory of cheap panels that are becoming more difficult to sell, you need new products to stimulate sales and keep inventory rolling.
can it connect to the likes of nexus 7? and if so...
No MHL or HDMI support listed on that display so no.
The display is also USB-powered with up to 7W so you need a high-current (2A) USB3 port to feed it. This may also be part of the reason for the low definition - refreshing more pixels takes a little more power and you also need a brighter backlight to offset the higher proportion of obstructions and losses.