A great post on PS3Blog.net clears up a readers question and I think they deserve some credit here, as the post is very easy to read and understand, so everyone looking for information on how the Cell processor does graphics, you have to read this post.
What is a GPU except a special-purpose processor? A GPU is basically a CPU but will special circuitry for doing 3D graphical things faster than a normal CPU would. A general-purpose CPU like the Cell is perfectly capable of rendering awesome 3D imagery. The faster it is, the better the imagery. And the Cell is fast. Also, it has 7 SPEâ€™s. 3D images are easy to partition into pieces, which is great for a multi-core processor like the Cell.