In the Video Generation tool there is an 'Enhance' button which opens a panel on the left hand side:
By default, and not currently configurable, using the Enhance tool will increase the pixel count by 2x (upscaling). Additionally you can change the frame rate up to 60fps which will improve the video smoothness.
If you increase a 30fps clip to 60fps without changing the speed, then Pencil will generate an additional 30fps to fill the gaps. These are interpolated frames. The motion between existing frames is analysed and new frames are created that attempt to bridge the gap smoothly.
