[piolaxo]

Of course there is resolution. The "noise" that is being referred when using a lower
bit conversion is actually errors, i.e. assigning more sound samples to one byte
(in the case of a ADC). That is why a four bit ADC will be a poor sounding ADC.
When getting back that signal back to analog with a (4-bit) DAC, that byte is fixed
so it will map to one sound and one sound only. You won't find the degree
of variations (a tiny little more amplitude of the same tone for example) and thus
it'll sound like an approximation of the real sound.

The more bits you have the less "errors", again called noise, so you get a greater
ratio between the real signal and the difference between the original and the converted
one, this is the SNR. The bigger the SNR the better. That is why many new digital
recordings are going directly to multi-track DSD -- all channels with the highest
resolution and sampling frequency that exists today.

Why are CDs 16-bits only? Partly because of the technology at the time when
the format started and partly because I don't think it was perceived that more
was needed at the time. There is also the physical media limits. The sampling
frequency was defined by Nyquist, so combining all these was believed to be sufficient.