It has to do with LCD that have a native resolution of 1280x1024 this is a 5:4 aspect ratio. The other resolutions that video drivers offer have either 4:3 or 16:10 aspect ratios. Text on a LCD which has a native resolution of 1600x1200 that is running at 800x600 look just fine. 1600X1200 and 800x600 are both 4:3 aspect ratios. In fact 800x600 is exactly 1/2 the resolution of 1600x1200 so when the LCD is run at 800x600 four native 1600x1200 pixels are used to form one 800x600 pixel. When run a 1024x786 text still look very good some pixel scaling has to be done still 1024x768 is a 4:3 aspect ratio and scaling works well for everything involved has a 4:3 aspect ratio.

The problem with running 1280x1024 displays at non native resolutions is that a 4:3 or 16:10 image has to be scaled onto a 5:4 aspect ratio display it just doesn't work well the image will be distorted and text will look awful.

All 19" and 17" LCD seem to have 5:4 aspect ratio 1280x1024 native resolution.

Some smaller laptop displays like my ThinkPad have high resolution 15" LCD. Text on my 15" 1600x1200 LCD when run at 1024x768 or 800x600 looks very good. It is true that text is sharper when run at 1600x1200 that is because 1600x1200pixels on a 15" display has a resolution of 133dpi where 800x600pixels on a 15" display has a resolution of 66.5dpi.
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JJMack