Macbook Air M1 resolution quality

Well, yes, that's the way resolutions work.

The largest resolutions make everything small, because the screen has physical limited dimensions so to fit a larger resolution with more pixels per inch that can show more windows and items everything needs to be smaller.

Select a lower resolution so things are readable. But then you have less space.

There's no real way to do that on Mac though. The text and icon size can be individually changes in certain places though.

click here ➜ Make text and icons bigger on Mac - Apple Support

Macs can use Retina scaling modes where the Displays Settings resolution is a sizing guide, but the actual drawing canvas has twice as many pixels in each direction.

Just because it works differently than what you are accustomed to on Windows does not mean that it is throwing away the resolution of the screen.