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When I press play to preview the video, the images start to blur a bunch like they are bicubic resizing or something.
However, when I press pause, the images automatically switch to a better resolution. Are there solutions or settings I should know? Any answers appreciated.
I think I found out the solution. If I right-click the preview, and select "Playback Quality", select low, medium or high and the image appears in various quality!
Exactly what I was going to suggest.
You could also render your timeline by pressing Enter.
Remember in any event that your preview is on a preview. The quality of the video in Premiere Elements' editor has nothing to do with how it will look in your final output.
You also don't say which version of the program you have, but version 2021 has some additional feature for improving your timeline's playback.
I'm using 2020