Several reasons for that:
1. Those 700 Mhz are dedicated to doing one thing only - 3D processing.
2. They have their own dedicated memory which is on the same PCB (printed circuit board) as the GPU, therefore it has direct access to the memory. Compared to the distance between the RAM slots which your CPU uses, the distance between the GPU and its RAM is much smaller which makes a lot of difference when it comes down to access time.
3. The RAM on video cards is getting faster and faster than system memory. Example - current GPUs use GDDR3 while Intel's maps show that they will start using DDR3 for system memory in 2007.
4. Interrupts are another reason why GPUs don't need speeds that great. The CPU is interrupted by lots of things - every keystroke on your keyboard, your audio card if it is integrated in your motherboard, etc. In comparison, the GPU is not, so it does not have to share its computing power with anything else.
I hope that answered your question.