Don't confuse dot pitch with screen resolution. I checked with
Webopedia to make sure I hadn't gone completely senile. The dot pitch is the distance in mm between like colored pixels on a CRT or like colored sub-pixels on a LCD display. Regardless if your monitor resolution setting is 1024 x 768 or 1600 x 1200, your dot pitch remains the same as it's a physical constraint of the manufacturing process. The smaller the dot pitch, the smaller the distance between adjactent pixels of the same color, so in this case, size does matter, and smaller is better.
A good short entry at How Stuff Works
So think of this grid of tiny dots on the physical screen. Let's say I want to paint a representation of the letter "C" in red on the screen. I do this by lighting up the red pixels in the approximate shape of the letter. So, the first thing to realize is that the letter is only a discrete approximation of a continuous curve. That is, unlike when I draw the letter C with a pencil, which is capable of drawing a continuous curve, I can't really draw on the paper (screen) anywhere I choose. I can only draw where there are pixel elements of the color I need (i.e., in certain discrete locations). For example, assume I have a monitor with dot pitch 'o' and another with dot pitch 'O'. Now, I draw the letter "C" the same size (in height and width - to your eye) on both monitors. If you magnify it, you might see:
---------ooooo---
-------oooooooo--
-----ooo------oo-
----oo-----------
----oo-----------
----oo-----------
----oo-----------
-----ooo------oo-
-------oooooooo--
--------ooooo----
on the Small Dot Pitch Monitor and
---------OOO-----
-------OOOOOOO---
-----OO-------OO-
----OO-----------
----OO-----------
----OO-----------
----OO-----------
-----OO-------OO-
-------OOOOOOO---
---------OOO-----
on the Large Dot Pitch Monitor.
So, you see, if the dot pitch is smaller, I may have to light up more physical elements to fill in the letter to make it the same size, but since each element is smaller, it more closely approximates the edges of the letter I would get if I were drawing it with a pen or pencil. Since it's closer to the continuous curve of a pencil, it looks smoother and sharper. (At least, I hope it does. My example's not that convincing, perhaps.)
Now, a screen resolution like 800x600 refers to the number of elements the operating system (or programs running within it) can turn on or off. I'll call these program addressable elements (unfortunately also called pixels). I will have 800 program addressable elements across and 600 down the screen, respectively. My 19" (diagonally measured) monitor (18" viewable), displays up to 13 3/4" wide (14" if I push it to the edge using the horizontal width adjustment) as measured with a ruler. It has a dot pitch of .25 mm. Doing the conversion, 13.75 inches is about 349 mm. Therefore, I have about 349 mm / .25 mm/pixel or about 1396 red, 1396 blue, and 1396 green physical pixel elements for each row. At 800x600 I have almost 1.5 physical elements for each program addressable element. turning on some program addressable pixels will light up two physical elements - others will light up only one. At 1280 x 1024, the ratio of program addressable to physical is about 1:1, (which also happens to be the best looking resolution on this monitor). At 1600x1200, the ratio of program addressable pixels to physcially addressable pixels is less than 1:1, which means when some program addressable pixels are turned on, no physcial elements are turned on. So, not only are the characters getting smaller at higher resolutions, I'm not able to paint them in with as good of discrete approximations; more pieces of the letters are missing. Up to a point, your brain will fill in the missing pieces. At some point, however, your brain says, "That's not the letter "C." That's garbage."
OK, I'll quit now.