yeah, basically it means that it supports the 720 x resolution. It technically doesnt PLAY it at that resolution, its impossible since its only got a 320 x resolution screen itself!!
If you, for example, put a 720 x film on a gp32, it would not work.
If you did this on gp2x it scales the file so it fits

if you put a super hd quality thing on there, it will work, on a tv out which displays a bigger display.
But 1024 is a lot for the little screen to handle, and it would simply suck.
The reason why gp2x supports this is because of these factors -
1) to make it easier to watch films on, simply drag them on, no encoding etc
2) for the tv out, to have a clearer picture

its all flippin good.