Watershed hydrological modeling methods are currently the predominant approach for flood forecasting. Digital elevation model (DEM) data, a critical input variable, significantly influence the accuracy of flood simulations, primarily due to their resolution. However, there is a paucity of research exploring the relationship between DEM resolution and flood simulation accuracy. This study aims to investigate this relationship by examining three watersheds of varying scales in southern Jiangxi Province, China. Utilizing the Liuxihe model, a new-generation physically based distributed hydrological model (PBDHM), we collected and collated data, including DEM, land use, soil type, and hourly flow and rainfall data from monitoring stations, covering 22 flood events over the last decade, to conduct model calibration and flood simulation. DEM data were processed into seven resolutions, ranging from 30 m to 500 m, to analyze the impact of DEM resolution on flood simulation accuracy. The results are as follows. (1) The Nash–Sutcliffe efficiency coefficients for the entire set of flood events were above 0.75, demonstrating the Liuxihe model’s strong applicability in this region. (2) The DEM resolution of the Anhe and Dutou watersheds lost an average of 7.9% and 0.8% accuracy when increasing from 30 m to 200 m, with further losses of 37.9% and 10.7% from 200 m to 300 m. Similarly, the Mazhou watershed showed an average of 8.4% accuracy loss from 30 m to 400 m and 20.4% from 400 m to 500 m. These results suggest a threshold where accuracy sharply declines as DEM resolution increases, and this threshold rises with watershed scale. (3) Parameter optimization in the Liuxihe model significantly enhanced flood simulation accuracy, effectively compensating for the reduction in accuracy caused by increased DEM resolution. (4) The optimal parameters for flood simulation varied with different DEM resolutions, with significant changes observed in riverbed slope and river roughness, which are highly sensitive to DEM resolution. (5) Changes in DEM resolution did not significantly impact surface flow production. However, the extraction of the water system and the reduction in slope were major factors contributing to the decline in flood simulation accuracy. Overall, this study elucidates that there is a threshold range of DEM resolution that balances data acquisition efficiency and computational speed while satisfying the basic requirements for flood simulation accuracy. This finding provides crucial decision-making support for selecting appropriate DEM resolutions in hydrological forecasting.