It wasn’t until I had taken the photo and thought about what was going on that this clicked. In this photo the silk worms are added to boiling water (heated from below in the same way the pots were cooking on the side of the street), they excrete the silk and then this is collected by the lady and wound up in the contraption.
If you click on this and get the full sized JPG you can just see the silk coming up from each of the poor little buggers. Once they are finished/cooked they are discarded. I guess silk is not vegan friendly.