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The Dumping Grounds were described in the Newgrounds FAQ long before they were employed. Possibly, this was a reference to the NG Alpha system, which, before the 2007 redesign, allowed people to play unfinished Flash files uploaded by users. 
Dumping Grounds storage is limited to 512 megabytes to each user. File types accepted are: .fla, .swf, .bmp, .gif, .jpg, .png, .psd, and .tif. This includes a variety of Flash and image formats, but doesn't include any audio formats. Only registered Newgrounds users can use this feature. In a recent post Tom has promised a redesign including a bigger limitation for Dumping Grounds.