I've been messing around with SDL and blitting surfaces and what not and found out that the function SDL_DisplayFormat() didn't do what I thought it did. I assumed that it changed the dimensions of the image to fit that of a predetermined screen via the SDL_SetVideoMode(). As I played with the functions I discovered that SDL_DisplayFormat() just starts at (0,0) and and cuts off everything not in the specified dimensions. Am I correct? If so, is there any function that will resize my image or will I just have to draw my images so that they are already the right size?

So, when game makers draw their sprites and what not, they draw them to scale?

Your follow-up question is a little ambiguous. Pixel artists "draw" sprites in whatever size is appropriate for the window's resolution (which shouldn't vary for a game using pixel art). For a game that uses pixel art and blits sprites directly in 2d, no scaling should be neccesary. Typically, games that have "drawn" sprites use a low resolution for the window. If you want to use a high window resolution or you need to scale your sprites, use a graphics API such as DirectX or OpenGL.