Should Small Room Always Have Small Tiles?

This would depend on what your personal vision is for the room. Tiles can be 12"x12" individual tiles or smaller tiles mounted on a 12"x12 "backing sheet to hold the pattern for placement on the floor or wall...

People usually pick smaller tiles for a small room IF they want to make the room appear larger. It gives the impression that there are more stuff in the room, therefore the room must be large. You can also use larger tiles with lots of small design to give the same impression. Or, you can use any size if they are just plain color as long as the joints or grout lines are not too prominent to draw attention to them.