What's the theory/purpose behind small change?

Actually, the first five-cent coin in U.S. history was made of silver and was smaller than today's dime.

That's because when coins were first produced by the U.S. Mint in 1793 the U.S. standard coin was the silver dollar, and additional coin denominations were made with a proportionate silver content to the dollar. This, in turn, established the size of each. For example a ten-cent coin, or dime, contained 1/10 the silver found in a dollar.

The five-cent coin (which contained 1/20 the silver found in a dollar) was eventually determined to be too small to handle, and the five-cent coin we know today as a "nickel" was created in 1866. The size of the coin was increased and its metallic content was changed from silver and copper to a combination of copper and nickel.

http://www.infoplease.com/askeds/nickels-bigger-dimes.html 

Why Small Change:  The monetary system of the United States was based on bimetallism during most of the 19th cent. A full gold standard was in effect from 1900 to 1933, providing for free coinage of gold and full convertibility of currency into gold coin; the volume of money in circulation was closely related to the gold supply. The passage of the Gold Reserve Act of 1934, which put the country on a modified gold standard, presaged the end of the gold-based monetary system in domestic exchange. Under this system, the dollar was legally defined as having a certain, fixed value in gold. While gold was still thought to be important for maintenance of confidence in the dollar, its connection with the actual use of money was at best vague. The 1934 act stipulated that gold could not be used as a medium of domestic exchange. More recently, a number of measures have de-emphasized the dollar's dependence on gold; since the early 1970s, practically all U.S. currency, paper or coin, is essentially fiat money.

http://www.infoplease.com/ce6/bus/A0859734.html 

Female soldiers answer is correct (and to make a bad pun, right on the money).

But your question is even more leading....why have small change change to begin with.  Or why now?

Part is due to inflation.  Coins had a great deal intrinsic value, hard to forge due to the cost to manufacture and the velocity of liquid currency back in the day did not require lighter currencies.  So this still has a nolsalgic appeal.  But this is fading

However, with inflation, there is limited use to coinage.  Nickels are certainly not easy to carry enough to pay for a cup of coffee.

 Even more, for many businesses, there is a high cost to handling coinage in comparison to bills.  This is one of the reasons for the rise of debit cards, and other forms of digital purses.

So you are not alone asking why small change.  There are some that wish to eliminate pennies based on their cost of manufacture, and handling cost.

One of the challenges though with inflation and an increase in the velocity of money is that some coins do stop being used by citizens as everyday currencies, and the issuers of money need to take into account the new velocity applied to higher denominations.  For instance, dollar bills have a very short lifecycle, and is one of the main drivers for turning it into coinage.