Canon SX120 IS has a
10.0MP 1/2.5-inch (5.744 x 4.308 mm ) sized CCD sensor and features Digic 4 processor. On the other hand, Canon SX170 IS has a
16.0MP 1/2.3-inch (6.17 x 4.55 mm ) sized CCD sensor and features Digic 4 processor.
Canon SX170 IS's sensor provides 6MP more than Canon SX120 IS's sensor, which gives a significant advantage in real life. You can print your images larger or crop more freely.
On the other hand, please keep in mind that Max sensor resolution is not the only determinant of resolving power. Factors such as the optical elements, low pass filter, pixel size and sensor technology also affects the final resolution of the captured image.
Below you can see the SX120 IS and SX170 IS sensor size comparison.
As seen above, Canon SX170 IS has a 1.1x Larger sensor area than Canon SX120 IS. Larger sensors give photographer more control on the depth of field and blurry background compared to smaller sensor when shot in same focal length and aperture.