Here's a great article featured from CNET's website by David Katzmaier, called "HDTV Resolution Explained" http://www.cnet.com/hdtv-resolution/?tag=buttonWrapper;menu1

While this is a couple years old, it's still very well written and we've added a few comments in RED to reflect our opinions.

Resolution is the main reason why HDTV looks so much better than standard television. On a high-def TV displaying a high-def source, a million or more pixels combine to create images that appear sharper and more realistic than TV ever has before. Resolution isn't the be-all and end-all of picture quality, however, and its numerous, well, numbers, can be incredibly intimidating at first. In this article we'll try to demystify HDTV resolution and help you cut through the hype that surrounds all of those numbers.

How important is resolution?
Not as important as you might think. According to the Imaging Science Foundation, a group that consults for home-theater maufacturers and trains professional video calibrators, the most important aspect of picture quality is contrast ratio, (above 10,000:1 is approaching the limit of perceptability), the second most important is color saturation, (A monitor with good color saturation can display subtle color changes distinctly so that the human eye perceives the differences. If similar colors blend together or if colors appear dark, they are oversaturated; colors that appear washed-out and faded are undersaturated.), (above 1 billion colors is overkill and HDTV's today routinely are over 500 billion colors!), and the third is color accuracy, (which comes precalibrated on commercial TV's). Resolution comes in a distant fourth, despite being easily the most-talked-about HDTV spec today.  The exception is large format TV's 58" or bigger being viewed from typical family room distances 10-15 or smaller TV's viewed from very close distances.  Then resolution becomes more important.

In other words, once you get to high-definition, most people are perfectly satisfied with the sharpness of the picture. All other things being equal--namely contrast and color--HDTV looks more or less spectacular on just about any high-def television regardless of its size or the HDTV signal's resolution itself. The leap from normal TV to HDTV is so big that additional leaps in resolution--from high-def to higher-def, let's say--are tiny by comparison.

Nonetheless the HDTV landscape is littered with resolution discussions, in regard to both sources and displays, so a little knowledge of how they interact is a good thing.

Native resolution:

For the rest of this article, we'll be talking about fixed-pixel displays like flat-panel LCD and plasma. . .

. . . All fixed-pixel displays have a native resolution spec that tells you how many pixels the display actually has. Native resolution is the absolute limit on the amount of detail you'll see.

Fixed-pixel displays follow a few basic rules:

• No matter the resolution of the source material, whether VHS, DVD, or HDTV, a fixed-pixel display will always convert, or scale, it to fit its native resolution.
• If the incoming source has more pixels than the display's native resolution, you will lose some visible detail and sharpness, though often what you're left with still looks great.
• If the incoming source has fewer pixels than the native resolution, you're not getting any extra sharpness from the television's pixels.
  

HDTV source resolutions
If you read those three axioms closely, you'll see that source is everything with HDTV. Or, as George Fueschel first said, "Garbage in, garbage out." There are two main HD resolutions in use today by HD broadcasters and other sources: 1080i and 720p. One is not necessarily better than the other; 1080i has more lines and pixels, but 720p is a progressive-scan format that should deliver a smoother image that stays sharper during motion. Another format is also becoming better known: 1080p, which combines the superior resolution of 1080i with the progressive-scan smoothness of 720p. True 1080p content is extremely scarce, however, and none of the major networks have announced 1080p broadcasts. The term 1080p today appears mostly in reference to the displays' native resolution, not the source.  Dish has for its internet connected boxes, Video On Demand in 1080p. 

 Despite the obvious difference in pixel count, 720p and 1080i both look great. In fact, unless you have a very large television and excellent source material, you'll have a hard time telling the difference between any of the HDTV resolutions. It's especially difficult to tell the difference between 1080i and 1080p sources. The difference between DVD and HDTV should be visible on most HDTVs, but especially on smaller sets, it's not nearly as drastic as the difference between standard TV and HDTV.

HDTV display resolution
Now that we've considered the source, let's look at the televisions. As we mentioned above, all fixed-pixel HDTVs scale the incoming resolutions to fit the available pixels, throwing away information if they have fewer pixels and interpolating information if they have more pixels than the source. 

Technically speaking, all of these numbers are accurate and useful, but don't put too much stock in them. In the real world, it's difficult to tell the difference between native resolutions once you get into high-def. For example, despite the fact that a 37-inch LCD with "only" 1,366x768 pixels has to throw away a good deal of information to display a 1080i football game on CBS, you'd be hard-pressed to see more detail on a similar 37-inch LCD with 1,920x1,080 resolution.

The truth about 1080p
In the last couple of years, there has been a big influx of HDTVs with 1080p native resolution, which typically cost a good deal more than their lower-resolution counterparts. But as we've been saying all along, once you get to high-def, the difference between resolutions becomes much more difficult to appreciate. We've done side-by-side tests between two 46-inch LCD HDTVs, one with 1366x768 resolution and the other with 1080p resolution, using the same 1080i source material, and it was extremely difficult for us to see any difference. It becomes even more difficult at smaller screen sizes or farther seating distances--say, more than 1.5 times the diagonal measurement of the screen. We've reviewed a 37-inch 1080p LCD, for example, where it was impossible to see the separation between horizontal lines at farther than 45 inches away. . .

We're not telling you to ignore 1080p HDTVs. They technically do deliver more detail, which can enhance the viewing experience for more eagle-eyed viewers. Also, many manufacturers build other picture-quality benefits, such as better contrast and/or color, into their 1080p HDTVs simply because those sets are the high-end models. And given the continuing march of technology, we expect more and more 1080p models to become available at lower and lower prices. Today, however, the premium for 1080p is still pretty steep, and unless you're getting a very large set, say 58 inches or more, or sitting very close to a normal size TV, we don't recommend basing a buying decision on whether or not the television has 1080p native resolution.

This is the number of physical pixels the television uses to produce a picture. You may notice that few of the resolutions in the table match the HDTV source resolutions exactly. That's mainly because TV makers find it more cost efficient to make panels with the pixel resolutions in the table and then scale the incoming sources to fit the screen. It's true that ideally you'd like to exactly match the incoming source with the display's native resolution, but it's much less important in HDTV than in, say, computer monitors. That's because scalers in HDTVs generally do a good job of converting the signals, and because most HDTV is in motion and seen from a distance, as opposed to static text seen up close.

All fixed-pixel displays are natively progressive-scan, meaning that even if the source is interlaced, they'll convert it to progressive-scan for display. That's why, for example, you'll hear about a "1080p LCD" but never a "1080i LCD."

According to the CEA's DTV definitions, which, for obscure marketing reasons, actually include televisions that have fewer pixels than HDTV source resolutions in the section above.