16 bit DAC using PWM on Nano's Timer1

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Hi, there have been a few questions on this but I am having difficulty interpreting the answers. Sorry if it's a dumb question....

I am looking at a Timer1 library page:

http://www.pjrc.com/teensy/td_libs_TimerOne.html

And it mentions that Timer1 is 16bit. However when we use PWM, our resolution is limited from 0 - 1024 i.e. 10 bit over 0-5V.

from the library:

Timer1.pwm(pin, duty);
Configure one of the timer's PWM pins. "duty" is from 0 to 1023, where 0 makes the pin always LOW and 1023 makes the pin always HIGH.

How come it isn't possible to have higher resolution PWM (and therefore a 16bit DAC?)

Thanks