VLC due to it's non-native nature, displays subtitles of .srt form and the like by printing the subs at the 'native' resolution of the video clip. This means if you have a low resolution video clip like 620x350 or whatever, and then enlarge it to 1200x800 the subtitles get 'scaled' using a blocky video algorithm, rather than merely 're-drawing' them as a higher resolution layer and then overlaying them on top of the upscaled video. We all know what it looks like as it is today, fuzzy, poorly defined edges, hard to read, etc.
Here is my best attempt at a solution for now.
Go into the preferences, click on video, click on subtitles/osd, click on text renderer, click on the advanced checkbox.
Font*: /System/Library/Fonts/ヒラギノ角ゴ Std W8.otf
Font size in pixels: 18
Opacity: 255
Text default colour: Yellow
Font size: normal
font effect: outline
YUVP renderer not checked
* Yes I know it is strange I am listing a japanese system font here. This font has english characters in it, very thick fat characters, which is good for visibility at low resolution and helps minimize artifacts when upscaling. Also, 18 point is the smallest I can get in pixels without severe rendering errors, still errors but not worth too much fuss over if we want to keep the size smallish. Using font size instead of pixels will not look the same.
An alternative method which you may prefer but the fonts will be spindlier and taller than the screencap above:
All of the above except the font is Tahoma, which you will have to grab from the MS Core fonts pack or something. Font size in pixels: 0, font size: large