Why is increasing DPI just decreasing my screen resolution?

I have a HTPC at home, hooked up to a 1080p TV at 1920x1080. Because I sit 10 feet from my TV, I needed to increase the text DPI to 150% so I can see what's on the screen. However, I found that increasing the DPI is just simply reducing the screen resolution to 1280x720, and then enlarged to 1920x1080 so everything is bigger.

I know this is true because many program state that as my resolution. Full screen YouTube videos automatically go to 720p instead of 1080p (unless I disable DPI scaling for Chrome, which makes my text small again). There is a dramatic decrease in detail (1080 -> 720) when watching Blu-rays with 150% DPI because the resolution is lowered by DPI scaling. Pictures in browsers are enlarged and not shown at the original resolution.

DPI scaling is pointless if it just reduces resolution. Is there a fix for this, or is DPI scaling just this poorly implemented in Windows 7?

Thanks.

DPI scaling doesn't lower the resolution and scale it up, if it did the UI would be pixelated. The DPI scaling in Windows 7 is not poorly implemented, it is the applications that are poorly taking into account different DPI scales. A properly written application that takes DPI into account would not suffer the same issues.