Also called "Resolution".
The resolution of a telescope is its ability to separate two objects (that are standing close together).
It can be calculated with the following formula:
To convert radians to arc seconds, multiply the radians with the factor 206265. The wavelength to which the dark adapted eye is most sensitive is 0.56 E-06 meters (0.56 micro meter).
This formula actually calculates the (angular) size of the airy disk. See "Focal Length" for an overview of the real size of the airy disk at the focal point.
Since the separation of objects depends on the type of objects, the above formula is not the final answer. Especially double stars of about equal magnitude can sometimes be separated even though it would seem impossible with the above formula.
The most important aspect about the above formula is the sole dependency on the mirror diameter. In order to increase the resolution, the only thing a telescope builder can do is to increase the aperture. With the sizes of today's amateur telescopes, the seeing will more often than not limit the resolution to a value lower than the achievable theoretical limit.