With Windows Phone 7 running on a variety of devices, albeit all of them adhering to the minimum requirements, there were some concerns regarding resolution against the screen size. Fortunately for developers, and consumers, WP7 devices include a hardware image scaler which means that developers can design their resolution at whatever size they want and have the image scaler adjust everything to look just as good on the whichever screen is running it. This technique is employed in the Xbox 360 and was not available in the old CTP version of the development tools. However, the newly released beta tools support the image scaling feature.
Check out more information and other advantages over here.
Thanks to WMPoweruser for the link.