1600x1200 signifies a screen that comprises horizontal lines of 1600 pixels and vertical lines of 1200 pixels. Think of it as width and height.
A higher resolution inevitably (the limited text/toolbar size adjustments available in Win XP aside) means smaller icons, text toolbars, windows.... everything.
For a real world comparison, you must divide the horizontal resolution by the true horizontal screen area to gain a true impression of what the image will look like. For example, a 17" CRT has a visible diagonal of c.16" and a true horizontal of c.14". The visible horizontal works out at about 13". Thin Film Transistor screens have a visible area that matches their true area.
A 15.4" widescreen TFT has a horizontal area of 13" and a pixel width of 1280 in its basic form (XGA). SXGA has 1600 pixels. So 1280 into 13 = 98.5 pixels per inch. A larger widescreen of, say, 20.1" (c.18" horizontal) would need nearly 1800 pixels to achieve the same object size, but in doing so, it would provide a substantially bigger desktop area. Regardless of screen size, more pixels means more room for multiple windows, but you have to ask yourself whether you will be able to use it comfortably when the objects are smaller.