I think the size tech penalty is more like, the larger you are, and therefore the bigger navy you have, the harder it is to implement new methodology and techology across your empire/your empires fleets. More akin to how it was much harder for Russia to modernize it's army and bureaucracy compared to, say, Prussia.

But yeah, it's mostly a gameplay thing to try and give the little guy a fighting chance. Being bigger is still always better, regardless, as tech doesn't make a huge difference unless the gap in technology is equally huge.