HD ready sets can receive HD signals wich have 1920x1080 lines of pixels, but they only have1320x768 line resolution, so they scale down the image to make it fit.
Full HD sets have 1920x1080 lines of pixels, so can display the image at its original resolution.
There's a bit more to it but that's it put simply.
Standard analogue will look terrible on any set more than 30". Reason to buy a high-spec set would be that you might eventually have an HD signal to feed it. BBC HD FTA is due on satellite in the coming months. Upscaling DVD players are quite cheap and Blue-Ray will probably become reasonable in price this year. PS3 looks fabulous on and HD set.