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In a nutshell: smaller "raw" files aggregate the sensor values within blocks of pixels. For instance, Canon's RAW format conveys information about individual "sensels." Each sensel (or "photosite") responds to a restricted range of frequencies (termed red, green, and blue). Each one of these, when later "developed," will be located at a single pixel site ...

Douglas Kerr gives a masterful and largely non-mathematical summary at The Canon sRaw and mRaw Output Formats . The situation is complicated and not perfectly understood, but much has been deduced by reverse engineering. Evidently sRaw is a 2 x 2 aggregation but with some chrominance subsampling; mRaw is likely a bona fide resampling (involving local ...

You say 'I just want to know if I've overlooked something'. It is possible you have overlooked the fact that your needs and goals will change over time. As time passes your photos will acquire an additional emotional and nostalgic value. And this value increases with the years. You will then see your photographic imagery in a whole new way that will ...

You may be able to sacrifice a bunch of pixels before your final rendering of the image, especially if you're just going to display the image on the web. However, by choosing a smaller filesize in camera, you lose control over how those pixels are lost. There are many different ways to downscale an image (this question shows several); each has its own set of ...