A digital camera views the world in little dots, hundreds and thousands of them (millions in fact). These are called pixels. The greater the number of pixels the camera uses, the better the quality and the greater the size of the image. Hence why a cameras quality is measured in megapixels (millions of pixels).
A 1.3 megapixel camera will produce an image of around 1154 x 864 pixels, where as a 5 megapixel image will be around 2500 x 2000 pixels in size. The higher the number of pixels the larger the file size of the image will be and hence more storage on the camera will be needed.
Beware of cameras, which offer interpolated resolutions, as this is not a true resolution of the camera. This is more prevalent on digital video cameras, but I have seen it on some normal digital cameras.
The optical resolution is what you should check, as this is the maximum number of pixels the camera can produce.
Interpolated resolutions add pixels to the image to make it appear larger, but the quality is not better. Interpolation works by adding pixels around an optical pixel, this is done via clever software in the camera. Imagine you have a red dot on a piece of paper and you wish to make that dot bigger, then you would add other dots around the original dot, this is how interpolation works. Most graphics software packages can do this quite easily but the image quality will NOT increase just the image size.