There is a trade-off between resolution and achievable frequencies. You mention Timer 2, but on the Atmega328P Timer 2 is an 8-bit timer, thus you would not be able to set the CTC to 1024.
Let's assume we are talking about an 16-bit timer, like Timer 1 on the Atmega328P. With a prescaler of one, you can time (assuming a 16 MHz clock) from 1 to 65536 "ticks", that is 62.5 ns up to 4096 µs.
This would be the most precise measurement because you are using one (processor) clock tick per timer tick (a prescaler of one).
However if you plan to time for more than 4.096 ms then you need to bump up the prescaler. The next prescaler up on Timer 1 is 8, so now you can time for an interval 8 times as long (32768 µs) however your accuracy (precision) has now decreased by a factor of 8. The granularity of the timer has increased from 62.5 ns to 62.5 * 8 ns, which is 500 ns.
If you need to time longer than 32.768 ms then the prescaler has to be larger again, the next one being 64. So now you can time up to 262144 µs, but with a granularity of 62.5 * 64, which is 4000 ns (4 µs).
My suggestion would be to use the lowest prescaler that you can, but still get the interval you want. So obviously you can't use a prescaler of one to time 10 ms.
I have a discussion about timers on http://www.gammon.com.au/timers.
On that page is a chart which helps visualize the effects of different prescalers:
The top part (count of one) effectively gives you the granularity of each prescaler. For example, a prescaler of 256 has a granularity of 16,000 ns (16 µs). Certain frequencies (powers of 2) will lend themselves to combinations (eg. prescaler of 1 with a count of 256, or prescaler of 256 with a count of 1).
However for frequencies that don't have that property, the smaller prescaler will (if it can be used) give a finer granularity.