Resolution in reference to Arcade Art
Resolution generally refers to the amount of image information crammed into 1 inch of space. Depending on the system, it may be referred to as PPI (pixels per inch) DPI (dots per inch) or LPI (lines per inch.)
Images used to create art for your cabinet should probably be between 150-300 DPI minimum. And, no you can't properly up-res your 200 pixel, 72dpi image to 300dpi. To get high resolution graphics suitable for use on an arcade machine, you will want to use the largest image you can find as source material for scans or photos. For example; If you have an image cut out of a magazine that is 8.5 x 11" and you want to use it as side art, you will need to scan it between 300-600 dpi so that the resolution won't dip below 150 to 300 dpi when the image dimensions are scaled up.
Visit Wikipedia's resolution page for detailed information about image resolution. Generally, the higher resolution, the better the output can be. Output quality is still greatly determined by the quality of the printer, paper, and other processes. Making sure that your images are not low resolution to begin with will definitely put you on the right track.
What about Vector Art?
Vector versus Raster. Which is better? The answer: it depends If this is the first time you've heard of it, you may already be familiar with some of the concepts. Raster images are created with programs like PhotoShop or other bitmap image editors. These images are made up of millions of little tiny dots in preset positions, and when they're crammed in tight enough, they look like smooth images. Raster images can be scaled down, and information thrown away in the process, but they can't be scaled up. You can fill a short glass with the contents from a tall one, but you can't go the other way.
Vector art is not constrained by resolution however. It is resolution independent because vector images are not made up of preset points in space. Vector art is mathematical in nature. A vector drawing program basically translates lines & shapes that you create into instructions to draw a lines & shapes from point a to point b. The important thing to know is that vector images can basically be scaled up infinitely without losing quality. Adobe Illustrator is a common vector drawing application.
See Raster versus Vector artwork for more information