VDMX gives you 3 standard processing resolutions and a fourth option to define any arbitrary custom size. Which mode you select affects the global processing resolution... all sources, and subsequent processing takes place at this resolution, regardless of the source resolution.
Low: 160x120 - useful for sketches web use.
Med: 320x240 - a good balance of speed and quality for live use
High: 640x480 - High quality, but results may vary depending on the processor
Custom: (any size) - for example, use 720x480 when working with DV source files -
Note that the source resolution does come into play. in terms of reading off the disk, and also what happens to the pixels if the resolutions don't match. for example, using a low res source and upscaling the processing resolution doesn't make much sense, since scaling can take place on the graphics card instead of the processor. However using a hi-res source and downscaling may actually give you better quality than med-res sources when processed at Med resolution. (make sense?)
When using arbitrary custom resolutions, you most likely are working with non-standard source material. In this case, it makes sense to 'match' the source resolution.