As much as I would like a monitor display in my contact lenses, somehow I think the public will find other uses for it first. Prepare to meet people in clubs soon with really shiny (and animated) eyes.
You can't focus your eyes when the display is so close, an "E" on the lens will look like a blur. So to get good resolution, you'll probably need a more focused light source, and you'll need voxels instead of pixels.
I think I can explain that. One thing that may be surprising about vision is that when you look at a scene, what you see comes from your memory of the scene (first iconic memory then visual short-term memory), not directly from your eyes. These memory buffers are refreshed from information received from the eyes, and most of that comes from the fovea in the middle of your field of view. That's where they placed the pixel.
(You do obviously get some information from your periphery, but not much. As an example, you are colour-blind in your periphery. The rods that detect light there cannot differentiate colours. If you see colour in your peripheral vision, that's because you remember the object being a certain colour from when you looked directly at it.)
The eye usually moves in jumps, called saccades. There are many other eye movements, but saccades are the most important for scanning a scene. While the eye is moving during a saccade, you receive no visual information. This is known as saccadic masking. That's important for making a device like this, because it gives the little chip a few milliseconds to do its business in peace.
Okay, so how do they make an "E" appear using only one pixel? My guess is that they have a small accelerometer on the chip that detects saccadic eye movements, then turns on and off the pixel depending on where the eye is pointed. As long as you can detect the start of a saccade, predict the target (acceleration is linear over short distances so at the midpoint it begins decelerating; at that time you've travelled half the distance and can predict the target), and refresh the pixel all in less than the duration of the saccade, you're set.
Because of saccadic masking, the person won't see any of this. In a series of these movements, the eye will scan the scene, detecting the edges of the "E", and from knowing where the edges are, the brain will reconstruct an image of the letter floating in space.
