Which resolution do I need?

This is a calculation you need to perform based on the smallest increment you need to monitor for the application. For example, if your application is measured in degrees as on a rotary encoder, you will divide 360 degrees by the number or fractions of a degree you have determined you need to be able to measure (360/X). The result will be your minimum resolution. Having determined that, you will choose a resolution equal to or greater than that number. Keep in mind that depending on the capability of your data acquisition system, it may be able to take the CPR and measure up to four times that amount (PPR).