With this sketch, approximately a tenth of a degree resolution is possible. Of course, such small numbers are going to be somewhat inaccurate because aRef will not be exactly 1.1V. Also, the LM35 is only guaranteed to be within 0.5 degrees of the actual temperature. However, it does yield higher resolution, if only for appearances' sake.
To change aRef to 1.1V, you use the command "analogReference(INTERNAL);"
Here's an example sketch using 1.1 as aRef:
float tempC;
int reading;
int tempPin = 0;
void setup()
{
analogReference(INTERNAL);
Serial.begin(9600);
}
void loop()
{
reading = analogRead(tempPin);
tempC = reading / 9.31;
Serial.println(tempC);
delay(1000);
}
Most of the usual sensor like the sht15/10 or the LM series or the Dallas DS18s20 have an accuracy of 0.5°C.