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Diffraction sets the limit on resolution: the Rayleigh criterion gives theta = 1.22 lambda/D. A 200 mm aperture at 550 nm resolves 0.69 arcseconds, which is about 3.4 mm at a kilometre. Larger apertures resolve finer detail, which is the fundamental reason telescopes keep getting bigger.
Rayleigh criterion
theta = 1.22 lambda / D
Linear detail
detail = theta x distance
It is the first zero of the Airy diffraction pattern from a circular aperture. A slit gives 1.0 instead.
No. Beyond the diffraction limit extra magnification only enlarges a blur - the empty magnification that cheap telescopes advertise.