""We don't think 20 megapixels is necessary for everybody. If a customer wants more than 12 megapixels, he should go to the full-frame models," Watanabe said.
The sensors in Olympus' SLRs, an element of the Four Thirds camera system also used by Panasonic, are smaller than those in mainstream SLRs from market leaders Canon and Nikon and much smaller than those in full-frame cameras. Those employ sensors the size of a frame of 35mm film, 36x24mm."
The issue is the size and density of photosites and how many you can cram on a sensor of a given size. The 4/3 system uses a smaller sensor that is inherently noisier than the APS or 35mm sizes. And those sizes are inherently noiser than medium format, etc. This hasn't really changed since the days of film - put the same size image on a smaller piece of film (think 110 vs. 35mm) and you are going to see more grain. You will never escape these physics, but as photosites and software get better, you can bend them. Remember how stupidly good the Kodak Instamatic 110 was? Remember Nakamichi cassettes vs. reel to reel?
12MP out of a 4/3 sensor is really amazing and takes nothing away from Olympus knowing their market. Several serious photographers on Expo have adopted the 4/3 system for their travels as it is small/lighter, etc. But see bajasurf's chart, linked above. 12MP out of 4/3 is gonna be noiser than 12 MP out of APS-C or 35mm.
In digital, you have to know your output needs. Your camera will capture a certain number of pixels in each direction. You may crop off a few to improve composition. What are you doing with your images? Printing, posting on the web? In either case, how big and what quality?
The numbers you need may be these:
-- Computer monitors are between 70 and 100 pixels per inch. How big, in pixels, is your monitor or TV screen?
-- "Perfect" printing is assumed to be 300 pixels (not "dots" or ink spots) per inch. As a practical matter, for prints larger than 8"x10", 150 PPI is more than adequate. Billboards need even fewer.
Do the math and you can tell how many pixels you need.