More correctly, capacitive screens use the skins ability to conduct electricity as a way to detect where the contact is. This because there will be a higher voltage detected near it, or some such. Resistive work the other way, as the surface of the screen is physically bending. This then result in a higher resistance in that area.

The main reason for capacitive screens is that they more easily allow for multi-point detection. that is, they can detect contact at multiple points at the same time. Resistive screens usually see a single large blob, and put the actual contact point somewhere in the center of that, when there are multiple points of contact. Note that there are resistive screens now that can do multiple point detection (but unlikely to show up on some “cheap” chinese gadget), and resistive screens in general allows for a more fine grained coordinate detection (allowing something like a stylus to pick between two small UI objects without having to zoom in or similar).