Having problems with standard Arduino board sizes many hobbyists are trying to minimize it. Of course in some cases size problems may be solved using official Arduino Nano or Pro Mini. But if you really need tiny size, then custom design is inevitable.
This Arduino clone is using Atmega88 in 28 qfn package which size is 5mm x 5mm. The finished board size is only 7.4mm x7.4mm. You cannot expect much circuitry on it. It has smallest possible resonator and several pads. Functionality is limited to: autoreset; UART, SPI, 4 analog channels, 1 digital channel, and one LED. It requires customized arduino bootloader. Author suggests ottantotto with some modifications as it runs on different crystal than original arduino. Anyway this is great custom arduino board that makes possible to embed it almost anywhere. See another attempt to make small arduino baord called smduino.