Arduinos reference voltage

I am right in thinking that the Arduinos reference voltage (aref?) can be used to set the sensitivity of the analog inputs? If so, how low can you go with this? I mean, what are the smallest voltage increments one can reliably measure?

Thanks!

Hi PlastBox,
A google search for arduino aref brings up this page http://arduino.cc/en/Reference/AnalogReference?from=Reference.AREF explaining how to set aref for 1.1 volts or to an external reference.

the smallest increment is the reference voltage divided by 1024