More specifically, editing the .conf file will allow you to scale up the game's resolution, but it will not change the actual resolution of the original game. You can, for example, play in a window but enlarge that window so it's bigger. Or, you can use a scaler which will attempt to "upscale" the game to a higher resolution. Note that this still does not change the original resolution of the game, it just applies a filter to try and display that original resolution as a higher one that might look a little better. More info on scalers here: http://www.dosbox.com/wiki/Scaler
If you want to mess with window sizes and scalers, there's a good discussion of how to do that in this thread: http://www.gog.com/en/forum/ultima_underworld/ultima_4_6_in_windows_mode
As DosFreak said, hittig CTRL+F1 will allow you to change key bindings in DOSBox. Basically it will map keys to other keys... so the game will still be using the same keyboard commands but you use DOSBox to map those to new keys.