An example game system includes a home-console type game device and a terminal device. The terminal device includes a touch panel and an inertia sensor, and wirelessly transmits to the game device operation data including touch panel data and inertia sensor data. The game device receives the operation data from the terminal device, and performs game processes based on the operation data. Moreover, the game device generates first game images and second game images based on the game processes. The first game images are compressed, and the compressed image data is wirelessly transmitted to the terminal device. The second game image is output to, and displayed on, an external display device which is separate from the terminal device. The terminal device receives the compressed image data from the game device, expands the received compressed image data, and displays the first game images on a display section.