Just to put this in perspective, the island of Hokkaido (on which Sinnoh is based) is 83 thousand square kilometres in area. So Sinnoh's size is definitely out of proportion in that regard.
Everything in Pokemon is scaled small, and it has to be for the games to flow well. Imagine if the game was scaled exactly like Hokkaido? The areas would be absolutely massive and likely incredibly bland/ repetitive to navigate, and the actual development of the game would be incredibly difficult. (If not, impossible, given the DS cartridge's size capacities.) Perhaps they could have filled Hokkaido's area with new cities and towns, but then the same development issues would arise; that and the game would be so lengthy that it'd get boring very quickly.
If you continue comparing Hokkaido to Sinnoh, its proportion differs in many more ways than just area. Jubilife City, which is based on the city of Sapporo, has ~120 citizens. Sapporo has almost two million. They're just not the game thing. Sinnoh is Hokkaido heavily modified to fit into a game. It's a bit silly to compare them in this way at all, really.