Steve Jobs in a rare appearance on Apple's quarterly earnings conference call, explains how the influx of 7" tablets isn't a threat to the iPad:

Almost all of them use seven-inch screens, as compared to iPad’s near 10-inch screens. Let’s start there. One naturally thinks that a seven-inch screen would offer 70 percent of the benefits of a 10-inch screen. Unfortunately, this is far from the truth. The screen measurements are diagonal, so that a seven-inch screen is only 45 percent as large as iPad’s 10-inch screen. You heard me right: just 45 percent as large.

I would hesitate to mention to Steve that the iPad's screen is only 53% as large as a 13" Macbook Pro's screen, and that the iPhone's screen is 13% of an iPad screen. Steve goes on to say:

Apple has done extensive user testing on user interfaces over many years, and we really understand this stuff. There are clear limits of how close you can physically place elements on a touchscreen before users cannot reliably tap, flick or pinch them. This is one of the key reasons we think the 10-inch screen size is the minimum size required to create great tablet apps. No tablet can compete with the mobility of a smartphone. Its ease of fitting into your pocket or purse. Its unobtrusiveness when used in a crowd. Given that all tablet users will already have a smartphone in their pockets, giving up precious display area to fit a tablet in their pockets is clearly the wrong trade-off. The seven-inch tablets are tweeners: too big to compete with a smartphone, and too small to compete with an iPad.

The problem with this argument is the implicit assertion that there are 'sweet spots' for complexity, mapping to 'smartphone' and 'tablet'. This comes from a company that has time and time again made successful products that confound previous assertions about form factors. If Apple decided to make a 7" iOS device, you can bet your ass they'd come up with UI patterns and complexity levels that are appropriate for the size. What Steve is really saying is "Nobody's made a UI that works really well on a 7" touchscreen and nobody but Apple can. Until we do, we're happy to say it can't be done."