It also means the photos will still look good in higher resolutions.
Interpolation is hard to explain...Interpolation is, for example, guessing an unknown value, from knowing two or more other values. so for example, say the answer is 6, you could guess it was 6 if you knew it was inbetween 5 and 7.
How this works in cameras is, you have a 3.1 megapixel camera, "Interpolated 10 mega pixels" means that it can produce up 10 mega pixel images, but it will guess what the rest of the image would look like, from the other pixels in the picture. So it can't actually "see" all 10 mega pxiels, it guesses the other pixels in the photo, to make a 10 meg pixel photo. It sounds clever, but i've heard it doesn't come out too well all the time.
Hope this helps.
