An Otto Cycle engine is made to operate below its peak power by restricting the flow of air into the engine with a throttle valve. Drawing air into the cylinder past this restriction creates a partial vacuum, which takes energy. The reduction in fuel efficiency thus caused is called "pumping loss". The Prius engine uses the Atkinson Cycle to reduce this loss. Power reduction is achieved by keeping the intake valve open and expelling part of the fuel/air mixture as the piston rises. A side effect is a lower peak power for a given engine size.
An apparently superior method to either closing the throttle or expelling fuel/air mixture is to keep the volume of air allowed into the cylinder the same as for full power and to reduce only the amount of fuel. This is called "lean burn", because a fuel/air mixture with less fuel than is needed to consume all the oxygen in the air is called "lean". Some engines use this technique, notably the Honda Insight engine. However, special design considerations are needed to overcome several problems. This side-bar explains why lean burn is not the "silver bullet" it at first appears to be. It should not be taken to mean that there is anything wrong with engines properly designed to use lean burn.
The following explanation of the major problem of lean burn, engine damage, is taken verbatim from message #1616 posted to the Yahoo! Prius_Technical_Stuff discussion group by Al, the Harley-Prius guy.
Normal combustion is never complete; by the phenomenon of thermal equilibrium, there remains an unburned boundary layer of air-fuel mixture insulating the metal components of the combustion chamber from the propagating flame front, that fractal beast of burning air/fuel mixture originating at the spark plug. A dangerously lean air/fuel mixture burns with most efficiency, so much that the insulating boundary layer also gets consumed and the flame front touches the metal walls. At those locations, there is a dramatic rise in temperature, high enough to cause subsequent charges of air and fuel to spontaneously ignite resulting in multiple flame fronts. This is pre-ignition. Preceding each flame front is its sonic pressure wave whose collisions we hear as knocking and pinging. Allowed to persist, colliding sonic pressure waves will concentrate on the irregular shapes present (edges of pistons, valves, even the spark plug) to cause severe damage, just as you could with a hammer in your hand; this is detonation.
Also, using fuel whose octane is too low, that is, fuel with a greater tendency to spontaneously ignite under the heat and pressure of a particular engine, can instigate multiple flame fronts with their usual knocking, pinging, and risk of damage from heat or detonation.
In addition to the engine damage problems caused by lean burn explained by Al, above, high combustion temperatures and an excess of oxygen cause the formation of oxides of nitrogen. The respiratory problems caused by air pollution are due in large part to these emissions and reducing them is an important goal of environmentally sensitive vehicles. The Honda Insight has special equipment to trap and convert oxides of nitrogen in the exhaust. Even so, with lean burn it is unable to qualify as a SULEV vehicle because of the remaining oxides of nitrogen that cannot be removed.