Large vs Small determines how the receiver's bass managment will split up a full range signal and route it to the speakers. It really has nothing to do with physical size. All receivers have two filters (crossover) - a high-pass and a low-pass, although not many let you set them separately as your Sony. The terminology is confusing till you get some experience with it and the topic of bass management can fill a book, but here goes...
High-pass: Lets the 'highs' pass according to the crossover frequency. It starts working BELOW the crossover frequency so that signals at the crossover frequency and above pass to the respective speaker. There is no standard for what order crossover the receiver uses, though most newer receivers follow the THX recommendation, even if they are not THX certified. Thus, the high-pass is 2nd order (12dB/octave). With a crossover of 60 Hz, 60 Hz and above signals are not touched. One octave below (30 hz) will be attenuated by 12 dB.
Low Pass: Let's the 'lows' pass. It starts working ABOVE the crossover. THX specifies 4th order (24 dB/octave). With 60 Hz crossover, 120 Hz would be attenuated by 24 dB. Frequencies at 60 Hz and below are not touched.
The idea of bass management is to get a smooth (flat) frequency response across the whole range by sending only the frequencies the speaker can handle well. Small vs Large is an attempt to simplify all this a bit. Setting both low pass and high pass yourself requires that you know exactly what order the crossovers are, exactly the frequency response of the speakers (they have crossovers too and you have no idea what order they are unless it is explicitly stated in the manual or they are THX, in which case the high pass is 2nd order.)
So...setting the speaker to small means it should get all frequencies at or above the crossover frequency. Setting the speaker to large means it should get a full-range signal (so only the speaker's crossover will touch the signal).
Here are all the combinations
-----------------------------
Subwoofer=Yes, all speakers Small:
All speakers get the frequencies at or above the crossover. The sub gets all frequencies below the crossover. LFE, which should not be confused with 'regular' bass, goes to the sub. LFE is the ".1" in a Dolby Digital track and is band-limited to 120Hz - usually it is much lower than that (80Hz and below). 9 times out of 10, this is the best setting and the only thing to determine is the appropriate crossover frequency. A good rule of thumb is to set it at 1/2 to 1 octave above the F3 point of the least capable speaker. So if the speaker's frequency response is listed as 40Hz - 20 kHz +/- 3dB, 60-80 Hz is a good start. If the speakers aren't very bass capable; like say they only go down to 100 Hz, then the rule may not work too well (1/2 octave above would be 150Hz and 1 octave above will be 200 Hz - that is getting to the point where you will be able to localize the bass; ie determine where it is coming from). In that case, just experiment with a setting right at the speakers F3 or go slightly above).
Subwoofer=Yes, some speakers Small, others Large:
Small speakers get frequencies at or above the crossover; Frequencies below the crossover that were destined for the small speakers get re-routed to the sub. The Large speakers get a full-range signal. LFE, if present, goes to the sub only.
Subwoofer=LFE+MAIN (or 'Double Bass' or LFE+SWFR - whatever the receiver calls it):
Small speakers get frequencies at or above the crossover; freqencies destined for the small speakers get re-routed to the sub. Large speakers get a full range signal + the LFE, if present.
If all speakers are Large, then all speakers get a full range signal + the LFE.
Subwoofer=No:
Usually the receiver requires that at least the front speakers be set to Large. The Large speakers get a full range signal. Bass destined for any small speakers that is at or below the crossover get re-routed to the Large speakers. LFE is lost.
