Overview
The project was built using a Atmega328pu, and Nokia 5110 LCd display on a Sparkfun dev board.
The board is custom-made (see attached Eagle CAD and images), but the project will function on a Arduino with the same microcontroller. The microcontroller is programmed with a USBTiny.
The software was written in assembly with Atmel Studio 7- initial versions written in C were far too large.


Character Development and Compression
The font was designed using our own Small Font Designer, producing variable-width characters 8 pixels tall.1K LCD-Tinyfont
Since each character is 8 pixels tall, each will fit evenly into bytes. The characters are packed to indicate their width, and each active pixel.

A => 5 wide, bytes: 0114a74620
width | data | data | data | data |  data
0x05,  0x01, 0x14,  0xa7,  0x46, 0x20
These bytes expand to:
. . . . .
. . X . .
. X . X .
. X . X .
. X X X .
X . . . X
X . . . X
. . . . .
Which kinda looks like an 'A'.

Messages are written to the display buffer letter-by-letter. The current character is loaded found in the program (slowly looping to save space), decompressed to individual pixels in 64-byte buffer, and written to the LCD display buffer.
For more detail: 1K LCD Tinyfont