Resolution usually refers to the amount of pixels per inch (ppi) an image or picture has. Digital images are made up of pixels (picture element), which are the small, coloured squares that are arranged in a grid to make an image. A high ppi will allow for a better quality print.
Below is an illustration of how the same image appears at different resolutions. As you can see, the lower the resolution, the less detail it shows until it degrades to nothing more than a coloured square. This also illustrates why we can’t just simply blow-up low-resolution images; there simply isn’t any information to work with when enlarging it.
Print requires a higher resolution than screen displays do. This means that a lot of images on the Internet have too low of a resolution to be printed. Most images for screen are set at 72 ppi, whereas small format printing (letter size) require 300 ppi and large format printing (posters) can get by at 150 ppi.
Bitmapped or rasterized images come in a variety of formats; the most common are: JPG, TIFF, GIF (web), and PNG (web). PDFs and EPSs can also contain bitmapped elements.
Here are two copies of the same photo. The one on the top is set at the proper resolution. Notice how clean and clear it looks. The one on the bottom is an image with a low resolution that has been scaled up to fit the same area. Obviously it is blurry and pixelated.
Hopefully this helps explain why image resolution is so important.