I'm about to buy a 20'' lcd. I wanted to make sure I can get the max resolution of the monitor's capabilities using the VGA cable.
And yes, the source will be able to output the monitor's max resolution.
I know of monitors with VGA connections up to 2048x1536, and I don't think your LCD will be higher than that.
VGA quality is related to the clock speed (of both the monitor and the video card). So it also depends on your video card. Check if your video card model supports the resolution of the monitor you'll buy.
Anyway, for better quality, I'd choose a DVI connection.