HI Andy
Its harder to explain than understand

The image size, pixel dimensions and resolution all work together to create the canvas. Basically you wnat to keep teh quality ( resolution) at a high so you should always lock that first ie your choice of 200 or 300dpi. Then select the image size eg 12 x12. You shouldnt ever need to manually change the pixel dimensions.
A tip to help. Make yourself a template. Create a canvas to your specifications eg 12x12 at 200dpi or 8x8 at 300dpi, add a blank background by doing insert square and stretch to fit an dthen save that as mylayouttemplate or whatever. Then each time you start a new layout just open that file. Make a Duplicate project and work on that. (dont save over your original template!) then you dont have to worry about inputting an image size each time
This is straight from the DIP help files and explains it pretty well I think
The pixel dimensions are the product of the image size multiplied by the .. For example, if you have a picture that is 4 x 6 inches, and its resolution is 300 pixels per inch, its pixel dimensions would be 1200 x 1800. Given this relationship, if you change one of the three settings, one of the other settings will also have to change to keep the mathematical relationship equal.
About resolution, pixels, and image size
The issue of image resolution is often confusing, especially when you want to resize a picture but also maintain its quality. The information in this overview should help.
Resolution
In general terms, resolution is a measure of how clear or well defined an image is. In digital image terms, resolution refers to the number of per linear inch or centimeter in the image. Because each pixel contains information about the image, the greater the number of pixels in an inch or centimeter means the greater the amount of picture information in that same space. This is why high-resolution pictures look better than low-resolution pictures.
Pixels
Although image resolution has a set value of pixels per linear inch (or centimeter), pixels themselves vary in size, depending on the resolution of the picture. For instance, if you increase the resolution of a picture from 72 ppi (pixels per inch) to 150 ppi, you are forcing almost twice as many pixels to fit in the same space, and they become smaller in size to do so. This increases the fineness of the picture. Decreasing the resolution leads to larger pixels.
Image size
Image size is a result of the total number of pixels in a picture and the resolution of the picture. As you increase or decrease the resolution, the image size (the physical height and width, not the file size) changes in inverse proportion. For example, if you start with a total of 10,000 pixels, and change the resolution from 150 ppi to 300 ppi, you are squeezing the same number of pixels into half the space, so the image size decreases. But the quality of the image increases because there is now more information in the same space.
Note
When changing resolution, pixel count, or image size, it is a good idea to work on copies of your pictures. This prevents loss of valuable information from your original pictures.