Thats fine. The world doesnt have to be gigantic, it just has to FEEL like it is
One of the biggest mistakes Bethsoft ever made with Oblivion was setting the game in a valley, when you can look clear across the map and see the other end of the country a mile or two away it really kills the feeling.
On the other hand Vvardenfell is a volcanic island and the mountain range in the center breaks up lines of sight. You can never look across from one end of Vvardenfell to the other, theres a huge mountain range in the way! So a game with a world 1/4th the size of Oblivion ends up feeling way way smaller.