There's been a fundamental change in the way that Photoshop works with pixels, thanks to Smart Objects in Photoshop CS2. In the past (pre-CS2), you had to be careful about resizing layers. Here's an example: I dragged one document into another to create a new layer and then used Free Transform to scale the layer down to a smaller size.
No problem unless I decide a week from now to scale the layer back up again—then I'd notice a definite loss of quality.
The quality loss is because of what used to be a fundamental concept with pixels: Scale pixels up, and you lose quality. Now with Smart Objects, the rules have changed.
Automatic Smart Objects
In this example, rather than dragging and dropping to add to my document, I used the File > Place command. It seems odd to place a Photoshop document into another Photoshop document, but that is the simplest way to create a Smart Object. After resizing the Smart Object to a much smaller size (with Free Transform), I can still scale it back up—as long as I don't make it larger than the original size—without any loss of quality.
Photoshop "remembers" the size of the original, so that as soon as you scale the Smart Object, it "updates" using the original. You can always tell a Smart Object by the icon that appears in the Layers palette.