don't thinking too much. it actually simple... if the resolution is 1366x768, u can play/view 720p movie/game without reduce/maximize the original source..

don't get confuse between console and pc... there are limitation when playing console (for an example ps3) where the resolution usually 480p, 720p,1080p, 720i, etc. so if u have 1366x768, of course the game will play in 720p and below. since the lcd resolution is 768 pixel vertical compare to the source is 720p (which is smaller than 768), it will stretch the image to fit the screen. however some lcd can view dot-by-dot or pixel-by-pixel where u will see the image in 720p without stretching anything.

if u using pc when watching movies, u can play any type of movies even if the movie is 1080p. it is because, the windows "media player" can downscale the movie fit into your lcd resolution...

i hope u can understand...