I don't have a 10D, but this is a pretty universal digital situation.
The issue here is that by saving an image at less than full resolution you are "throwing away" part of the potential of the image.
To illustrate this, open an image saved at full resolution (3000 x 2000). Now, resize that image to 750x500 pixels.
Now, Resize the original file to 4500x3000. Resize the small image to 4500x3000. Notice a difference? The upsized small pic is gonna look like crap, because it doesn't contain as much info as the larger pic upsized does.
For those who prefer a more tactile demonstration, take a piece of printer paper. Fold it in half. Fold it in half again. The paper should now be 1/4 the original size. Cover the folded paper with pennies until you can't see the white paper. Only use enough pennies to cover all the white, don't make it an inch thick.
Now, unfold the paper and use the same number of pennies to again cover the paper. Whatcha got? Pennies with lots of white space between them.
That's what they mean when they say you will lose clarity in the pic. The pennies represent the info contained in the pic. It realistically will never get any bigger than what you save it at. Obviously there are some software things you can do, but it still won't be as good as a higher resolution pic will be.
If your output is destined for online viewing only, go for it. You'll get a ton of pics on a memory card. If you plan to print them though you need to go full res and down-size as needed for the web.
For me the question becomes "why buy a dslr just to shoot low res snapshots?" You could buy a much cheaper camera to do that with.
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