I’ve complained about the megapixel wars problem before. My contention has always been that on a typical DSLR sensor, 6 megapixels is about the practical limit. A smaller resolution would be the practical limit for compact point-and-shoot cameras.
Here’s a nice blog post on why that is. Because of the wave-like nature of light, there is always some diffusion that occurs in a lens. The degree and size of this diffusion is fixed for a given aperture, and when it becomes significantly larger than the elements of your sensor, adding new pixels will not result in increased apparent sharpness.
From my limited understanding of digital imagery, this is only part of the problem, but it illustrates the fact that no matter how good your lens and sensor are, there will always be a bit of fuzziness (the diffusion). And drastically increasing the sampling rate only more accurately captures the diffusion (which can be helpful).
Up to a point, that is. Another aspect of this mess is the gain problem.
There is a fixed amount of light coming through the lens in any given lighting situation and exposure setting. The light is divided amongst all the sensor elements it falls on. Increasing the number of sensor elements (without increasing the amount of light) means less light for each pixel of your picture, and a darker image.
You don’t want a darker image. And you often can’t increase the amount of light. So the camera compensates by amplifying the signal coming out of the sensor (also called increasing gain). The sensor has a certain amount of low-level noise, and amplifying the signal also amplifies the noise. Even if advanced noise-canceling algorithms could remove all of the noise (they can’t), the system is still trying to interpolate information that was not there to begin with, and so much of the new signal is at best an educated guess.
Some of that guess is going to be wrong. And your camera doesn’t have any advanced noise-canceling algorithms built into it, so the noise will be more pronounced. Which negates some or all (depending on how far you take things) of the additional accuracy that you gained by increasing the number of sensor elements in the first place.
Go check out Petavoxel’s blog. There are other articles worth reading on issues of digital sensors and the megapixel wars.