I have been playing around with a Kindle 3 and it seems there are two ways to embed fonts in documents. The first is simply to make a PDF, which the Kindle 3 supports natively; my backgrounds don’t help, because the Kindle screen already is pretty dark, and the Kindle-for-Mac/PC reader has a settable background brightness. Also the background images use up storage. The other way to embed fonts is to use Amazon’s own format, which AFAIK has not been reverse-engineered sufficiently for a person to make his own books with embedded fonts; and I suspect the format is based on SVG or some other format with unhinted fonts. Amazon’s format gives the user some control over the layout, such as font size, but I would lose the good hyphenation, etc., that my PDF software can generate.
I have no knowledge of the Kindle being able to change the layout of a PDF, which is among the fancier activities supported by PDF thanks to user demand rather than the developers’ original intentions.