Hi,

Channel length modulation causes a non-zero slope in the IV characteristics of the transistor and the slop is inversely proportional to the output resistance i.e. slope=1/ro (ro=rds).  The steeper slope (channel length modulation) you have the less output resistance  you will get. Now let's have a look at the gain of the CS. It is
Av=gm(RD || ro).
What happens now? your ro is becoming smaller (due to channel length modulation) while your RD is large. So,
Av=gm(RD || ro) becomes approximately Av=gm ro (for a large enough RD). That actually represents the intrinsic gain of the transistor.
Another way to look at that is replacing the RD with an ideal current source (with an infinite output resistance). You will see then ro dominates the equivalent output resistance.