Retina and pixel density
Apple uses high-resolution displays where pixels are dense enough that at normal viewing distance they appear as a smooth image. macOS then uses scaling so that text and UI stay a comfortable size while using those pixels for sharpness.
"Looks like" resolution
In Display settings, you choose a "Looks like" resolution. That is the logical size of your workspace—how much fits on screen. The display still runs at its native resolution; macOS scales the image so it looks sharp while giving you that workspace size.
Default (often "Looks like 1440 × 900" on a 5K or "Looks like 1920 × 1080" on 4K) is a good balance. More space = smaller UI; less space = larger UI.
Workspace and sharpness
Choosing a larger "Looks like" resolution gives you more space for windows and text but everything gets smaller. Choosing smaller gives you bigger UI but less space. On Retina displays, both can look sharp; the trade-off is purely how much fits on screen.