From a Tektronix document:
Resolution is a measure of the smallest increment that may be discerned. At first glance, it would seem that 10.000 volts measured with a 40000 count DMM would be read to a resolution of 0.001 volt. This is usually the case where the DMM's A to D converter resolution exceeds that of the display but some have less resolution than the display. In this case, the last digit could read 0, 1, 2, 3, 5 ,6, 7, 9, etc. with a linearly increasing voltage. Notice that only eight out of the ten possible values were displayed. This is an artifact due to the digital nature of the conversion. In a more extreme case, only odd or even digits are be displayed, hence the need for a resolution spec separate from the display count.
To avoid quantization artifacts on the display, most manufacturers limit the DMM count accordingly.