As has been stated by others, there is a difference between the resources option and the start option.
"Resources" is part of the map generation, before players/npc/AI get involved. Every game has a random seed that determines how the physical terrain ends up- where the continents go, etc. The map options like temperature, world age, etc, help determine how many hills become mountains and how much desert/tundra/forest/jungle you get. The generator also knows to place luxury, bonus, and strategic resources down- so when you change the resources setting, it literally places more or fewer resources on the map. (Where it would place 2 citrus, it might place 4.)
Once the map has been made, the generator "scores" locations for player starts. Civs are then matched to these based on start biases. The scoring is kind of similar to how the settler UI suggests city locations. As you can imagine, because the map is randomly generated, the "best starting locations" might vary wildly in quality. If you select the Balanced start option, it will try to narrow this range down so everyone starts on more equal footing. This usually brings down the ceiling; it's harder to find great starts for everybody than mediocre ones. If you select legendary start, it basically cranks things to 11; the generator will try to place civs in locations with a minimum quota of luxury and bonus resources nearby. (I'm not sure if it will place the extra resources before or after it's assigned starting locations.) Basically, legendary start brings up the floor for starting locations so really bad starts should be excluded. Some will get good starts and some will get great starts. It tries to do this. Sometimes the map doesn't play ball and you end up on that tundra island with one fish.
The other key thing is that the way the generator scores locations is not balanced to how Civfanatics play the game. A resource is a resource. It doesn't know that salt is an amazing luxury, resources with +1 science are critical, or that goofy hill formation is the perfect IZ+Ruhr Valley site.
