It's true that to train more information into the model you need more trainable parameters, but when people ask for small models, they usually mean models that run at acceptable speeds on their hardware. Techniques like mixture-of-experts allow increasing the number of trainable parameters without requiring more FLOPs, so they're large in one sense but small in another.

And you don't necessarily need to train all information into the model, you can also use tool calls to inject it into the context. A small model that can make lots of tool calls and process the resulting large context could obtain the same answer that a larger model would pull directly out of its weights.