For quality purposes, you're better off using the monitor at it's "Native" resolution. For 7'' screens that tends to be 800x480, but it generally requires a little extra work to get it on that resolution. Next best to that would be 800x600 as you're only doing compression of 120 lines, so you don't loose that much detail.
Regardless of the screen's resolution or the skin's size, you can always make it fit. Just take a look at this FAQ: