I have my powerbook screen rez set at 1440 X 900 and the O/S graphics and text look crisp and clean... but as soon as I switch down to 1152 X 720 or any other rez, everything gets a little fuzzy/blurry including application icons on the dock and all the text.
The answer to your question is quite simple. All LCD monitors only function in one resolution, which is called their "native" resolution, that is, how many physical pixels the monitor is made with. In your case, your Powerbook has 1440 pixels across, and 900 down. 1440x900 = 1,296,000 total physical pixels inside the LCD. When you try to tell the LCD to change resolutions, you're asking it to physically contain less pixels, which obviously is impossible. So the best it can do, is "emulate" the resolution you ask for. Thus using several physical pixels to draw one virtual pixel. The result of this, is that your screen looks like complete crap. However in games, this looks okay usually.
Note that ALL LCD monitors works this way, not just laptops. CRT monitors use a completely different technology, and thus are able to display all lower resolutions with no problem.