MacBook Air M3: Display presets and text size/resolution?

It's to give you a choice. If Apple did not give you that choice, some people would probably complain about that.

Note that selecting something other than maximum resolution does not imply that you are wasting the screen's potential.

E.g., I'm running a 27" 4K display in Retina "like 2560x1440" mode.

• The Displays Settings "resolution" is 2560x1440 pixels. Applications use this "resolution" for sizing text and objects, and non-Retina-aware legacy applications would believe it to be the actual resolution.
• The drawing canvas has 5120x2880 pixels – twice as many in each direction. Retina-aware applications (i.e., most of them, these days) use this to draw letters more precisely, and fill photo areas with 4x as many pixels.
• The Mac downsamples the 5120x2880 pixel image to get the 3840x2160 pixel one for the display.

Thus, the Mac is using the 3840x2160 pixel resolution of the display – it isn't simply generating a low-resolution 2560x1440 image which then gets scaled up ("digital zoom") by the Mac or the monitor. (If I wanted to do so, I could select "2560x1440 (low resolution)", but I have no particular interest in that more deeply-buried setting.)