When you look at a low-res screen which is fairly large, such as a 19", you may notice that the edges of some icons and text are pixelated or blured. This comes from a single pixel transmitted by the vid card being shown with 3 or 4 pixels. As a result the shape of the actual pixel itself becomes visible.
When you increase the resolution of the screen you display the same information in a smaller space. If the resolution is to high then 2 or 3 pixels from the vid card are shown with 1 pixel on the monitor, this leads to blurring of the image.
The optimial resolution is where one pixel from the vid card translates to one pixel on the monitor. This is called the "Native Resolution" of the monitor.
Another benefit of a higher resolution is that you can fit more information into a smaller space. The bottom line is that higher res settings at the native resolution give the sharpest picture possible on a monitor, while allowing for a large desktop space to work with.
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"Empirically observed covariation is a necessary but not sufficient condition for causality" - Edward Tufte
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