I have a few things to say on the topic.
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Voodoo3 can do 32bit in 2D, I believe, but it cannot do 32bit in 3D, which is one of the major failings of the card (versus a TNT2, which is from the same era).
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The screen does not get more detailed as you lower the resolution. If so, no one would be playing at 1024x768, they would be playing at 640x480. The 1024 is the number of pixels that fit horizontally on the screen, while the 768 is the number that fit vertically. For example, 10x8 would look like this:
x x x x x x x x x x
x x x x x x x x x x
x x x x x x x x x x
x x x x x x x x x x
x x x x x x x x x x
x x x x x x x x x x
x x x x x x x x x x
x x x x x x x x x x
Each x is a pixel. A pixel is a solid block of colour (not exactly, but close enough for the purposes of this explanation). It is only one colour. There is no detail to a pixel. A pixel can be red, but it's only one shade of red. If you reduced the resolution of your screen to 1x1 (if that was possible), your screen would be a solid block of colour.
Higher resolutions do not always make things smaller, either. When you resize your desktop, everything becomes smaller because the icons were designed to be a certain pixel width and height, so they look smaller because the pixels are smaller (so as to fit more into your screen). This is not considered a problem as long as your monitor is big enough to allow you to see things well.
3D games, such as FS2, will not have this smaller effect, because they are using models instead of bitmaps (or equivelant). These models are rendered and then simplified into the pixels you see on your screen. The more pixels you have to cover an object (because it's either taking up a large portion of your screen, or you're running a high resolution), the greater detail you see the object in. Antialiasing is basically a technique for making the simplification less obvious and distracting.
Because of this, you'd think that the higher resolution, the better. Unfortunately, this is not strictly true, because the models are skinned with bitmaps (or equivelant). Because of this, they do have pixels pasted onto them. This means that a model, even at a huge resolution, will look like it has a blocky wallpaper on it instead of a textured surface if the skins are not high resolution enough to cover the monitor pixels that are showing them. This is unfortunate, because it means that high resolutions don't always give the good looks you'd expect. Bump mapping is one way of working around this, but it's far from perfect.
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I probably missed something or misspoke in places, so if you know what you're talking about, feel free to correct me

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