When using non-native resolution text and graphics will not be as sharp. The bigger the difference between the resolution of your monitor and the resolution you want to play a game at, the worse the graphics/text will look. Generally speaking though, if you want to play a game at lower than the monitor's native (max) resolution, then it's best if you play the game at a resolution that is divisible by a whole number like the number 2 (or as close a possible)
If your monitor's resolution is 1680 x 1050, then theoretically playing a game at half that resolution (840x525) should result in the best image quality other than using the monitor's native resolution. Of course 840x525 is not a standard resolution supported by monitors so you go with a resolution that seems close to you.