The penalties on bigger realms are already quite extreme.
1. Realm control is harder.
2. Recruiting troops costs more.
3. Tax rates have to be lower.
4. Takeovers are harder.
And that's all leaving aside indirect things like it being more difficult to keep a large realm cohesive, the distance from capital penalties, the pain of mutli-front wars, etc.
The reason you don't see more smaller realms is, I think, due to communication options. To explain, let's say there's a war. Realm gets destroyed, another realm doubles in size. They don't want to colonize, because that means they can't be in the same realm as their buddies and can't talk. They don't want to secede for the same reasons. The new landholders are all friends of the Ruler, or they wouldn't have been appointed, so that reinforces the ruling faction and makes them all want to stay in the same realm with the rest of their faction.
Obviously, those are sweeping generalizations, but I think they hold reasonably true.
And the communication stuff is why you see things like SA and the CE-bloc working (religion/guild communication) when other stuff falls apart.
As for the Far East...Well, I'm trying to change that, but it's not particularly easy and requires getting a lot more power first, which these silly people don't seem to want to give me for some reason...
