1) Turn the resolution up to at least 1024x768 (preferably 1280x1024), enable at least 2XAA and 8XAF in your graphics card control panel. That, along with max details, should give you decent image quality right there.
2) Anisotropic filtering is often the preferred choice. There is almost no (if any) diff in this game, so pick whichever you like.
3) Different resolutions generally increase how sharp and now crisp things look. That is a total oversimplification but in the end that's what you see. Basically, the higher the value (ie. 1600x1200) the more pixels are displayed by your graphics card and transferred to your monitor. Of course the more pixels that are displayed, the better everything looks. Easy way to understand: take a piece of paper and draw a straight line. Now draw a bunch of little dots in a straight line with very little distance btwn each dot. Now draw a bunch of dots in a straight line but increase the distance btwn each dot to about 5cm. Which set of dots gives you a better representation of the straight line you're trying to achieve? Obviously the one that has more dots and less space btwn each dot. That's generally what happens when you increase the resolution, more dots (pixels)/area.
The difference btwn 640x480 and 1280x1024 in NBA Live 2004 (or any game for that matter) is night and day. The game looks very blurry, blocky and overall just plain shitty on 640x480 or even 800x600.
The trade-off for increasing the resolution should be obvious now. The more pixels displayed, the more taxing it is on your system and the 'choppier' the gameplay, which brings us to your next question:
4) Framerates basically imply how many times per second your screen is being updated with new information from the game. The higher that value is (ie. 60fps) the more 'smooth' your game feels and the less 'choppy' it is. This has nothing to do with how FAST the game is moving because that is kept constant. Since the game moves at a constant speed, if your computer can't keep up and can't display enough frames per second (fps) the less animation you'll see. In Live 2004, imagine going up for a jump shot and your goal is to release the shot at the apex of your jump. If you only get to see 3 frames of animation (on the ground, feet just off the ground, feet landing on the ground) and you don't get to see the frame for the apex of your jump, how the hell are you going to time your jump shot? Answer is you don't and you'll have to guess, therefore making the game difficult to play. This is commonly referred to as 'choppiness' (because it seems like your character does one thing and the next second he's already doing something else without you seeing it) or 'laginess'. However, if your computer is fast enough and can display all the frames, then voila, a jumpshot is no prob and the animation seems 'smooth' since you get to see every frame from when he's on the ground with the ball, rising in the air, shooting the ball, coming down and landing on his feet.
Ideally you want at the very least 30fps for every game, while 60+ fps is optimal. Contrary to common belief the human eyes can see past 30fps and 60fps. Beyond 60fps though, most people can't tell much difference and animation is considered fluid and smooth.
Hope this wasn't too confusing