The data in the original output simply isn't there. Since the maximum output of the Wii is 480p, every game made for it is going to have a maximum resolution of 480p.
If you are using an upscaler, it doesn't magically create higher-resolution image from nothing. Upscaling spaces out the original image creating gaps between the pixels. The upscaling device will have an algorithm built into the firmware that will 'guess' what should go in the blanks to make the image appear higher resolution than the source data.
Blurriness is going to depend on how good your upscaler is at guessing. Dolphin looks good because the upscaling algorithim is good. TV's and other hardware devices, the algorithim is not so good, so it's blurry/out of proportion.
I'm sure it gets a lot more technical, but that's my attempt at explaining in layman's terms. Hope it helps.