It might not be obvious from the other responses, but textures only get applied to the geometry inside the !TEXMAP START/END group. (For !TEXMAP NEXT, the texture is only applied to the next line of LDraw geometry.) This means that even though the image is rectangular, since it only shows up on the specified geometry, it can quite easily be mapped onto a non-rectangular flat sticker.
Others have already pointed out distortions that can appear when the geometry being mapped is non-flat.
Others have already pointed out distortions that can appear when the geometry being mapped is non-flat.