Different XY tolerance values can produce different results for relational and topological operations. For example, two geometries might be classified as disjoint (i.e., no points in common) with a small XY tolerance, but a larger XY tolerance value might cause them to be classified as touching. Generally, XY tolerance should be an order of magnitude greater than the XY resolution (10 times is recommended). This ensures that data is not accidentally corrupted during processing. XY tolerance is not intended for generalizing geometry shapes; rather, it's used for integrating points, lines, and boundaries during relational and topological operations.
Verify that the spatial reference used for processing is using default properties for its coordinate system. If the xyResolution and xyTolerance properties of an input's spatial reference have changed from their default values, internal geometric calculations using the altered spatial reference properties may result in invalid output or failure.
After verifying that the spatial reference is valid, or fixing it if needed, use the Check Geometry tool to evaluate whether the input has invalid geometry. If any geometry problems are found, use the Repair Geometry tool to correct the problems and rerun the tool.