Not sure if anyone answered you yet (this thread moves FAST), basically it allows you to fit more content on the screen. Menus, text etc are displayed smaller.
To expand on what he said, Go to your local store and check out phones with a higher resolution (qHD or better) and you'll understand why people mess with that setting.
---------- Post added at 09:38 PM ---------- Previous post was at 09:37 PM ----------
Which, as most of us tech geeks know, doesn't matter.