There's the 1-px side subpixel font named Millitext and a 3px-wide subpixel font that passes as type, but sticking with full pixels makes legibility tough at tiny sizes. Jason Kottke's Silkscreen is exemplary at 4×5. Making a gruesome 3×3 font is a kind of ritual for pixel artists. Nanofont is 3×4 with a 2-pixel tall lowercase, but today I find myself surprised at the legibility of Two Slice, a 2×2 font posted on Reddit by Joe Fatula.
Here's my best attempt at making a font that's only 2 pixels high. It's not great, to be honest, but I'm surprised at how readable it actually is. ... It's terrible, but surprisingly not as terrible as it should be.
I figure it works because it's not worrying about letterforms at all, so the resulting visual consistency makes it easier to scan and read than Nanofont or those subpixel retina-wreckers. Perfect for your in-game signs and flavor text, pixel art game devs!
Fatula, a visual designer, made a test widget and offers the font there for download under a Creative Commons licence.