Correct Answer:
When you set your display to use the native resolution, that means you are going to use the resolution that is was created for, which means it will provide you with the best quality image it can produce.
Incorrect Answers:
Granted, LCDs do have refresh rates. That's the time it takes to redraw the screen. However, LCDs don't have refresh rates the way a CRT has a refresh rate. Regardless, the refresh rate has nothing to do with the native resolution.
Your LCD will experience pixel interpoltion—an effect used to blur the edges of pixel to create rounded edges—if you DON'T set your monitor to the native resolution.
The lowest resolution would be the exact opposite of the native resolution.