If I read things right, the pictures were being used were actually from MLS sites, and Zillow was using them on their site. A large goal of the site is to take

If I read things right, the pictures were being used were actually from MLS sites, and Zillow was using them on their site. A large goal of the site is to take the different closed off MLS listings and aggregate them on one site for people to find. But, working with the MLS sites is extremely hard to do and they require sometimes large fees and have very strict/weird requirements to use the data. The big thing with Zillow, is that a problem for them is having access to as many MLS listings as possible, since most of the realtors use the MLS to post homes. Without these, its basically just a price estimator and search engine for homes. Zillow already has a tenuous relationship with the MLS sites and most likely pursued the lawsuit to prove to the MLS sites they are serious about the use of their images, and likely were worried about this affecting their relationship with some of those listing agencies. Although only speculation, I see this as more likely than the lawyers just going after this to be a bully (but they still probably did the wrong thing either way).