There are several reasons why smaller engines are more efficient than bigger ones:
This explains why two of the same model cars with different engines can get different mileage. If both cars are driving along the freeway at the same speed, the one with the smaller engine uses less energy. Both engines have to output the same amount of power to drive the car, but the small engine uses less power to drive itself. But how can this smaller engine provide the power your car needs to keep up with the more powerful cars on the road?
Let's compare a car like the Chevy Camaro, with its big V-8 engine, to our hybrid car with its small gas engine and electric motor. The engine in the Camaro has more than enough power to handle any driving situation. The engine in the hybrid car is powerful enough to move the car along on the freeway, but when it needs to get the car moving in a hurry, or go up a steep hill, it needs help. That "help" comes from the electric motor and battery -- this system steps in to provide the necessary extra power.
The gas engine on a conventional car is sized for the peak power requirement (those few times when you floor the accelerator pedal). In fact, most drivers use the peak power of their engines less than one percent of the time. The hybrid car uses a much smaller engine, one that is sized closer to the average power requirement than to the peak power.
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