Maybe I’m wrong. I’ve been using Sketchup since 2005. As an example, The display units resolution determines how small an increment you can move a component or object using the cursor, (w/o length snapping). Zooming in to an object allows even more precise movements up to the 0.000001" threshold.
It also seems to determine the resolution with which you can import a model. I’ve imported .dwg’s & .obj’s with the display precision set to, let’s say 0.00" & the highest resolution (0.000000") and the same complex geometry (aka super small vertices & faces in the .000" range) import differently. At a lower resolution, some faces won’t show up that do at the higher resolution. Not sure why that is.
My feeling is that it not necessarily what Sketchup can & cannot handle in terms of geometry, it is more of a function of how fine or coarse a resolution you selected for the file you are importing into.
Once again, could be wrong about all that.