"Supported" formats at the moment are CDI, NRG, and GDI. You can also use real cd-rom discs (note not GD-Rom discs, as they won't work in a cd drive anyway). As Arthonis says though, the support isn't perfect at the moment, so if you encounter issues with demo images or other freely available homebrew, please raise a bug in the issue tracker (with url if possible ).

Side note - you can actually run (some) demos without the IP.BIN, or bios, or anything of that nature. Unfortunately otoh some demo authors were slack and depended on the bootstrap to setup the display environment, and some require the bios fonts etc, so...

Cheers,
Nathan