I believe my examples were about frame rates, but it would somewhat apply to resolution as well. Bluntly put, yes, I expect a lot of people would have trouble discerning the difference, especially on some of the sets they own. 55 or 65" from 12-15'? The difference between a 1080p to 1440p upscaled image and a native 4K? Yeah, I expect a lot of people wouldn't be able to tell the difference. Or at least, not enough of a difference. In my experience, they often cannot. Once again, they have no frame of reference.
Your 10yo may understand the concepts just fine. I will be happy to take your word on that. Just like you, my examples are going to be heavily anecdotal. Of the about 40 people that are part of my local family - kids, parents and singles - kids from 2 to 16yo, parents -mostly early 30's but some into their early 40's, I would expect 3 of them to know, care and research about this stuff. Those 3 are my brother (ex-Ti engineer, currently at Garmin) and his 2 teenage boys. I would expect no one else on that list to have much of an idea and would completely lack the motivation to find out. Most people have been trained to know 4K = better image. That is about all they know. How many people do you think will buy a good set, know they need a new cable, and actually setup their tv? Especially the price conscious people who will be buying an S. (early adopters and PS5 people buying a 2nd console I mention below)
Are you the person your friends and family rely on for tech help? I would imagine most of us on here are. Parents, Grand Parents, kids, friends our own age, in-laws. If you are that person, how much do they know before talking to you? How many actually speak with you about something like a new TV? Kids and the retired have time and, maybe, the interest. I just think you are vastly over-estimating peoples eyes, knowledge, and willingness to research. You know how long it took me to find the info on the LG CX and its ability to handle a PC at 120hz 4K 4:4:4? It was about a week ago that I finally came across a Forbes article and HDTVTest posted a video about Nvidia supporting the output and the LG CX being good with the 40Gbps. Now granted, I have not been truly diligent trying to find that out, and I could have just written LG, but I don't have the time to go through the avsforum megathread. The bandwidth was always there, but whether or not it was a supported signal took me ages to find out.
Your example was PS5 buyers who get an S, presumably just for GamePass or some exclusives. We are talking about early adopters then. If they know all about resolution, HDMI 2.1, display setup, etc. - then I would fully expect them to know they are buying a lower end box the marketing for which explicitly states it is a lower resolution machine and meant for 1080p-1440p to be upscaled to 4K if your TV supports it.
I don't know how popular or unpopular either your opinion or the Series S is/ will be. Plenty of people seem to be against its very existence. Probably not that unpopular a take. Hell, I could be wrong as hell and tons of people buy, get annoyed, and return it followed by getting something else. Maybe it gets panned in the mainstream press and completely tanks. Seen plenty of posters here, and elsewhere, saying they will grab one for a bedroom, a kid, or so they have access to the games on the cheap while primarily going with the PS5.
Not only do I plan to get one, I am wondering if I am going to have to preorder from 2 different places because their will be limits that are termed "1 Xbox per customer" which would not differentiate based on model. I was even wondering if I could find the cash to send one to a friend for the holiday's. For me, I am getting an X barring some earth shattering news from Sony. I am getting an S for the bedroom and my wife. There was a debate held, I didn't want her to feel like a 2nd class citizen and thought that maybe the OD was worth it - Redbox videos and the library. While gaming on her Switch, she just told me that she wants to play Grounded with me, asked me if Viva Pinata was on GamePass and said get the S. She would rather save the $200. I
Our examples are just anecdotal. Maybe expanded a bit beyond that by forums and twitter. I look at that price point and the people I know and think they will leap at it. At that price, it won't just be early adopters getting it, but all those price sensitive people that may have waited for years. If they have decent credit, and want GamePass, they can even get the thing cheaper than $300.
edit: And hell yeah this is going to be interesting to watch unfold. I cannot remember a time that presented visions this different. (Unless you want to argue the Xbox One and TV, TV, TV was a different vision... hard to argue with that. Ugh.) Love that they will push each other on price and services. Better for all of us.