The max res on a laptop screen is a function of the physical screen - the actual physical number of pixels horizontally and vertically (you can see them if you peer closely), aka the "native resolution".
LCD displays are fundamentally different from CRT displays in that the logical pixels (as per the selected display resolution) aren't "smeared" across the physical pixels.
First of all you can't go to a higher display res than the native res (unless you want a scrolling desktop), and if you go to a lower res than native you either get blank areas to the tops or side, or you get a blurry mess.
Windows uses a technology called
ClearType to improve the display of fonts on the blocky LCD pixels. Like the linked article says, it's turned off by default on XP and makes a big difference if turned on. To do this, right-click on your desktop background, choose "Properties", goto Appearance tab, click on Effects button. Then choose Cleartype under "Use the following method to smooth edges of screen fonts.
This is all academic and more than what you wanted to hear. Most likely if your windows display settings only allow you to go to 1024x768, then that is the native resolution of your screen. Sorry also from me :-(
The 1400x1050 is the "widescreen" format, which is not in the same ratio of width:height as the traditional CRT display which is 4:3. So you would have had a choice of regular 4:3 display (XGA, 1024x768) or the widescreen model (1400x1050). Sounds like you chose the XGA model.
Yes it is annoying that most places that sell notebooks don't make this distinction clear - and most buyers are unaware of this as well.