[Ian]

After looking at some digital camera specs I keep seeing Interpolation mentioned... i.e 2 Megapixel Resolution, but 3.3 MP Interpolated resolution.

I understand roughly how it works, by "guessing" the rest of the image... but how much difference does it make?

[kish]

That depends on what the final use of the image will be.
Digital cameras use interpolation to enhance their digital zoom. The image appears larger, but this is not derived from an optical light source (as with a regular camera's zoom); it comes from digitaly enlarging the image in the same way that Photoshop or paint shop pro would.

So what's the problem with that?
Well, if you will just be viewing it on screen, then it won't be a problem because you will never need to view the image on screen at its full resolution anyway.

If you are planning to make high resolution prints of the image then you will also be fine, upto a certain size (and i'm talking about actual print dimensions here). However, once you try to print out the image larger than the original resolution intended for, then you will get a slightly fuzzy image. Basically, just because the camera interpolates a higher resolution doesn't mean you can print larger and expect the quality to stay the same.

As a rule, ignore the interpolated resolution specified by the camera and concentrate on the original (optical) resolution.

Hope that all makes sense...
It may be better explained here.