I had the same question. The 420x540 maximum image size is a mistake from their end in my opinion, as it previously used to say a minimum. I think if you can get a digital photo at 420x540 then you should be ok.
The other clarification I needed is that 420x540 pixel dimensions translate to 35x45mm. So in essence the digital photo will be more zoomed in when compared to the printed 50x70mm that is used in paper applications.
The link they provided in the online application appears to confirm that it is based on 35x45mm - see link below.
https://www.canada.ca/content/dam/ircc/documents/pdf/english/kits/forms/3139-photospecs-e.pdf