It's too small for Cassini's cameras to resolve, but by comparing its brightness with a similar moonlet, Pallene, scientists reckon that it's just 500 metres across. Other measurements suggest that the moonlet is accompanied by debris between 1 and 100 metres across. Impacts of meteorites with this material and the moonlet would knock off dust to replenish the arc, which is about 250 kilometres across, and extends for about 150,000 kilometres, one sixth of the circumference of the rings.
The gravitational field of Mimas, which orbits just beyond the outer edge of the G ring, tugs the moonlet to and fro, and also keeps the ring arc together. Maybe tidal effects perturb that rubble too, causing collisions that create more dust. More complexity, but as always, it follows known physical laws. It isn't physics that limits our ideas of possible worlds; it's our imaginations.
UPDATE: Emily Lakdawalla's Planetary Society blog has a very good discussion of the new moon, and suggests that 'Cassini's beginning to venture into the murky terrain that separates "moons" from "ring particles."' And the Bad Astronomy blog has a great discussion that gets into the nitty-gritty details of how a moonlet can paint dust across the sky.
(Yes, I am a Saturn wonk.)