He's explained it a little badly. It's not a question of faction size, but of how much land a faction holds relative to its number of active members. The idea is to make it harder for a faction with less active members in it to hold large amounts of land.
As for vigilance, it's an anti-hoarding measure. Factions that fight a lot of wars will accrue economic benefits to make up for their losses, while passive factions will weaken with time.