I'm not sure I agree with that statement completely... back in the day when you had CRT displays it was perfectly possible to have different X output resolutions. On top of that you had the panned desktop output thing which was ugly but moderately workable.
OK: I just ran nvidia-settings and was able to get my 1920x1200 native desktop down to 1280x1024 and a bunch of other intermediate resolutions. It's a little ugly due to being non-native resolution, but it works. Is there some other setting you are talking about that doesn't work?
That reply was badly worded and unclear.
It's still perfectly possible to have X output different resolutions. It's dependent on the monitor to support the resolutions though.
I remember the desktop panning feature. It was pretty cool. I'm not sure X still has that ability, but I've been meaning to find out.
The OP wants Xorg to scale the output to 640x512 while actually outputting 1280x1024, which is the native resolution of the monitor. This is not possible. Xorg will output 640x512, but it's not going to simulate 640x512 while actually outputting 1280x1024.