There are lots of parameters that influence body size. Here is a non-exhaustive list:
- visibility to predators
- ability to hunt bigger preys or to manipulate smaller preys
- running faster
- be more impressive
- fighting ability
- energy consumption for maintaining a body
- Quantity/quality of food to be found
- homothermy (heat loss)
- sustaining its own weight
- Rooms for the organs
- Attractiveness to the other sex
- being more able to move freely (in viscous environment (water))
- mechansisms for bringing nutrients and air to the tissues
- density of the body (water)
- excretion of wastes
- moving in small habitats
- Hiding in small areas
- bearing big and complex structures
- Parental care
- flying better
- artificial selection
- etc..
Saying that today's species are smaller than previous species is maybe over generalize. For example, the largest species that is thought to have ever lived is currently extant, it is the blue whale (it can weight more than 200 tons). The tyrannosaurus is roughly the same weight that the african elephant (7 tons). However it is true that insects were typically bigger before than they are today. It is also true the the sauropoda are particularly impressive as some of them were 3 or 4 times taller than a giraffe and weight around 100 tons. [Bruhathkayosaurus](The http://en.wikipedia.org/wiki/Bruhathkayosaurus), the largest land animal that ever lived may have had a weight comparable to the blue whale!
A common argument to account for the big size of dinosaurs and especially of insects during the triassic is the oxygen concentration in the atmosphere (ref). It is particularly relevant for insects as they have no hemoglobin, meaning that the oxygen has to be dissolved into their body liquid (mostly water) to be brought to the cells. From Henry's law, the concentration of a gas such as oxygen in a liquid is a function of the concentration of this gas in the atmosphere. Therefore, the highest is the oxygen concentration, the easiest it is to bring oxygen to all the cells of a big body and therefore the lowest is the cost of having a big body.