The resolution of the point cloud This resolution is directly related to the characteristic distance between neighbor points in the cloud (and hence the point density). 

The resolution of the intermediary mathematical model Here the resolution (low resolution means high smoothness) can be thought of as the size of the smallest details which the model can render. If the resolution is set too high the resulting model will also contain point noise. At the other end of the scale you will get a very simplified (smooth) model. 

The resolution of the CAD model This resolution is related to the face size. Smaller faces means that the CAD model will render the mathematical model better. No new details will emerge that were not present in the mathematical model. The number of faces should be sufficient to render the topography of the mathematical model satisfactorily. 