Yeah it's resolution, as far as I can remember
UXGA - 1600x1200
SXGA - 1280x1024
SXGA+ - 1400x1050
WXGA - 1400x900 ?
WUXGA - 1920 x 1200
The W is wide, these resolutions and their screens have a 16:10 (ish) ratio rather than the normal 4:3.
More resolution gives you more screen space to work with, but at the price of making things smaller and more difficult to read, and in the case of LCDs, encourages you to run games at this resolution too, so the GPU has to work much harder. Resolution is all down to preference, I like high, some like low.
When not in default resolution, known as native, yes, an LCD will look fairly bad, because it attempts to stretch a smaller image over a higher number of pixels. Imagine stretching something 500 pixels wide to fit on a 1000 pixel display, you can simply use two physical pixels to represent each image pixel, but imagine trying to do this stretching a 1280 pixel image over a 1600 pixel screen, you get a strange ratio and the screen has to compensate by blurring and antialiasing. It's usable but certainly not great in my opinion.
As to which scale better and to what resolutions, that involves a hefty amount of maths and without knowing the exact methods the screen scales by, I cant tell you. Perfect scaling occurs when the desired resolution is an exact factor of the native resolution, such as 1600x1200 to 800x600. The general trend is that the more pixels, the better the scaling.
I hope LCD technology will get to a point where native is hundreds of thousands of pixels wide, so it can scale extremely well to usable resolutions, but for now native resolution should be used wherever possible.