More specifically, faster twists are needed as bullet LENGTH increases, or as velocity decreases. A .22-250 can use a slower twist rate than a .223 with the same length bullet, because the velocity is higher, which gets the bullet spinning faster.
LOTS of things impact accuracy, and twist rate (meaning: bullet stabilization) is just one of them.
The original XM16s had a 1:14 twist, as this was the common twist rate used in the .222Rem bolt guns at the time. However, the .222 guns were used for varminting, and used short, light bullets. The 1:14 twist wasn't always able to properly stabilze the 55gr FMJ bullet, especially in arctic conditions, so it was tightened to 1:12 for the M16A1.
The 1:7 was a compromise between the twist rate ideal for long M855/SS-109 bullets (1:9) and the VERY long M856 tracer bullets (1:5).
If we're talking about leadcore bullets, 1:9 will properly stabilize anything from 40gr-75gr. The 1:8 twist is used to stabilize the long 80gr bullets for long-range competition. These are the longest/heaviest bullets in general use. 1:7 is really too fast unless you're using M856 tracer on a regular basis.
-Troy