PR2 = 0x1F = 31
You can think of the resolution as indicative of the number of steps you can control the PWM with. "Resolution = 7" means 7-bit control. The least significant 2 bits are "decimal-place" bits. So, the resolution is actually 5. This means that you can control the PWM in 2^5 = 32 steps.
Since PR2=31, you can only control it in 32 steps (0 to PR2+1). So, that's 5-bit control as you already know.
Now, it's called 7-bit resolution taking the decimal places into consideration. The decimal places set 0, .25, .5 and .75. So, that's four additional steps. 32*4 = 128. 7-bit -> 2^7 = 128.
Hope this helps.
Tahmid.