That is a result of GNOME 47’s approach to fractional scaling in X11 apps.
(Most) X11 apps (such as xrandr) don’t support scaling by non-integer ratios such as the 1.25x that you have selected.
GNOME 46 addressed this by running X11 apps at 2048x1280p (resolution ÷ 1.25) and then having the OS scale them up by 1.25x to 2560x1600p.
However having the OS scale apps up like that tends to be pretty bad for quality (although the OS scaling down usually gives decent results). Whereas if the app is responsible for scaling itself then the quality is much better.
GNOME 47 however runs X11 apps at a 4096x2560p (resultution × 2 ÷ 1.25) with the app scaling itself by 2x and then the OS applies 0.625x scaling on top of that to overall run at 1.25x scaling (because 2 × 0.625 = 1.25). This achieves much better quality.
Wayland apps (Wayland is the successor of X11) are able to just scale themselves by 1.25x, so this only applies to apps running through XWayland (a compatibility layer for X11 apps running on Wayland systems).