Much better! Thanks!

I tried "alt+r" in the game menu and nothing happens. Does it only work when the game is actually launched into a mission?

Yes.

I wouldn't ordinarily necro such an old thread, but hey, this is GOG after all and "necro" is pretty much the standard, isn't it?

Dungeon Keeper came out in 1997, long after most games were being released for Windows, not DOS, and at least several years after 320x200 or 640x480 were the upper limit.

Tthere are plenty of games from that time which support resolutions up to 1080p.

Not sure what is the argument you're making. But:
* DK is based on a modified Magic Carpet engine from 1994; it is true in 1997 this engine was old, considering the pace of hardware changes at these times.But there also weren't that many better engines, yet.
* Most "new Windows tech" games just used GLIDE or Direct 3D API directly, as there was little time to prepare abstraction around that. So these were typically simple games, racing or shooters.
* Bullfrog Engine, as most VESA-based engines, allowed resolution up to 1600x1200. The low resolution of games were due to speed of CPUs not being able to handle anything more. Most Bullfrog games used 320x200 by default to present a new player with fluent gameplay rather than a slide show.
* Many games were prepared for multiple platforms, and supported resolutions were also limited by the need for portability. The highest mode for PSX was 640x480 (and that was only possible with interlacing).

Try checking the Wikipedia on that years games:
https://en.wikipedia.org/wiki/1997_in_video_games

From the leading titles, I can count like 6 which supported res over 640x480, from which 2 are allowing 1024x768.
Not a large chunk of releases.

One game which used all the new tech with proper engine and therefore had impressive abilities was "Myth: The fallen lords". Though I didn't played it much - I remember at the time concluding it looks bland and everything happens too slowly.

The next era after software-rendered games was - the fixed GFX pipeline games. The games all looked the same, as shaders were not introduced yet. Just a bunch of polygons with smeared textures, looking the same in every game. Was it really an upgrade? For some reason, most people look more fondly on the software rendered titles - there, every engine has its own unique feel.

I remember when i finally could afford a computer on my own, the first game i purchased on it was Daggerfall and the game resolution was 320x200 too

It looked great on my monitor (at the time obviously) , i think Dungeon Keeper got its release 1 year after so it's not surprising it was still 320x200 , most people computers would have had a hard time on higher resolution for 3D games, that was more for rich people that could afford the higher specs.

Unreal came a year after and was a graphical revolution, and run like crap on most people computer, requiring strong (expensive) systems to run smoothly.

When you replay those game now , you can see how computer horsepower really skyrocketted since those pre-2000 times when you can increase the resolution so much now on thsoe oldies without a single performance issue