Responses
It's a really common compliment in most of East Asia. "얼굴이 작아요" (Your face is small) is like "Your face is well proportioned/your face isn't square/you are cute." Is best to translate. I'm sure it's the same for the Japanese.
Also sorry random info-dump lol. I agree, it's such a funny thing to say out of context, especially in English.

everytime i see someone say "they have such a small face" in a manga:
( °-° )