Electronic Gear Ratio: By changing the electronic gear ratio to realize the different pulse equivalency.

The accuracy of the servo controller depends on how many lines of the encoder, but this is just the accuracy of servo system.
 
In the machine there are many different machanical parts like ball screws, worm couples, screw pitchs, number of gears, etc, so the minimum movement of the

machine requires different motor rotation rates.

Electronic gear ration is the value to match the motor pulses and the machanical minimum movement.

For example:

If a CNC lathe machine uses a 10mm screw pitch ball screw, then the machanical will move 10mm if the motor runs 1 circle, and will move every 0.001mm if the motor runs every 1/10000 cirles.

Or if the CNC lathe machine user a 5mm screw pitch ball screw, with Diameter programing then the machine will move every 0.001mm if the motor runs every 1/5000 cirles.
 
This is the principle of Electronic Gear Ratio.