Rugs that are too small make furniture look like it’s floating awkwardly around a postage stamp. People sit with front legs on the rug and back legs off, which feels wobbly and looks unbalanced.
If you choose rug size according to furniture, you aim for most front legs of sofas and chairs to sit comfortably on the rug in living rooms. In bedrooms, you might want the rug to extend beyond the sides and end of the bed so feet land on it when you get up.
This creates a sense of unity and comfort. The rug ties the zone together instead of shrinking it.