Does Android resolution matter for other than clarity? In Android OS, does screen resolution matter in applications?

Obviously a phone with 800x480 resolution is going to look much sharper than a 320x480 one, but is that the only difference? Do the icons and such scale at different resolutions or just look sharper?

Can I actually fit a lot more on the screen on the higher res phones (such as when you increase the resolution on a desktop PC?) I am looking for an inexpensive Android phone that doesn't require Sprint's bogus $10 "4G fee". Unfortunately, it looks like the only phone that is decent and doesn't require this fee is the LG Optimus S (free right now). However, the resolution is 320x480. I'm going to check it out in a store soon but wanted to see what you experts think.

Thank you!
No, what matters for clarity is acuity, or the "number of pixels versus screen size versus viewing distance". A 800x480 image shown on a 100" monitor seen 30 cm viewing distance would look awfully pixelated, while 480x320 screen on a 2" monitor seen at the same viewing distance would look very sharp.

LG Optimus S has a 480x320 pixels on a 3.2 inch screen (i.e. 2.66x1.78 inch screen). The pixel density of LG Optimus S is (480/2.66 = 320/1.78) = 180 pixel per inch, IOW the size of a single pixel is 1/180 inch. 

On a viewing distance of 20 cm (the typical viewing distance for a phone), 180 pixel per inch translates to 0.04233 arcminute per pixels. For comparison, human eyes can resolve 0.3 arcminute in a good lighting condition.

The extra resolution gives programs two options; it can either use it to fit more stuff in the same area, or it could use higher resolution images and produce sharper display. Home screens often do not do the first since it will make the icons smaller and more difficult to press, instead they calculate the amount of stuff to fit from the actual physical size of the screen instead of the resolution.