Both Canon SX120 IS and Olympus XZ-1 have 10.0 MP resolution sensors but Canon SX120 IS's sensor is 1/2.5-inch (5.744 x 4.308 mm ) and Olympus XZ-1's sensor is 1/1.63-inch (8.07 x 5.56 mm ).
Since Olympus XZ-1's has a larger sensor area with the same resolution, this means that it also has a larger pixel area hence better light collecting capacity for a given aperture compared to Canon SX120 IS.
Below you can see the SX120 IS and XZ-1 sensor size comparison.
As seen above, Olympus XZ-1 has a 1.8x Larger sensor area than Canon SX120 IS. Larger sensors give photographer more control on the depth of field and blurry background compared to smaller sensor when shot in same focal length and aperture.