Until we have reliable and wide-temperature operating superconductors, electronics are limited by electrical resistance in the materials that conduct electricity. So the materials inside CPUs have resistance. With chemistry we've lowered it as much as we can, but for it to still be a semiconductor (the material that makes transistors and CPUs work) there are practical limits and we've hit those with humanity's knowledge today.

Take your hand palm flat and place it on the floor next to your foot. Put some weight on your hand and drag your hand quick from your toes to your heel. Your hand got a little warm from the friction, right? Now imagine doing that same hand dragging exercise from your bedroom all the way to your living room. HOT HOT HAND! Friction is the same thing that causes heat in CPUs. The friction is the electrons flowing rubbing against the resistance in the conductor.

So we've got heat limiting us, and the more distance we have, the more heat we have, the more limits on CPU speed we have.

So with present day CPUs, how can we make less heat? Use less distance in the CPU from place to place inside it.

This is where we come to your 3 nm (nanometers). This is the measurement of the width (of a part called the "gate") of one single transistor inside the CPU. Its 3 times smaller than say a 9 nm gate technology CPU. Our new CPU has 3 times less distance to travel which also means it needs less electricity to do the same work. Less electricity also means less heat because there fewer electrons rubbing against the conductor's resistance.

So less distance to travel, and fewer electrons needed to travel. Thats good stuff for making faster CPUs!

So now you ask, why are we stopping at 3nm? Why not 1nm right now? In short, we don't have the technology for it yet. CPUs are made with, believe it or not a photographic process! Light in the specific shape of the CPU circuit is shined on specially prepared silicon. Chemicals make part of that silicon conduct, and some part NOT conduct. This is semiconductor lithography. I could go down a whole separate line for this, but this isn't what you asked so I'll leave off right here.

The smaller it is the less power it needs. That also means it generates less heat, allowing you to do more computation without the device melting.

Smaller process means less energy. Less energy means less heat. Less heat can mean faster operation. So without changing any of the layout or logic of the chip itself to make it more efficient, just shrinking the process alone will give you a speed boost.

But it goes further than that. Chips are cut from a wafer. The cost to make that wafer is (for the most part) constant. So if you can only make 20 or if you can make 2000 chips from that one wafer, it ultimately costs the same. But then that means the more CPUs that can be made per wafer, the per-CPU cost drops.

So you get a more power efficient, cooler, faster and cheaper chip when you shrink the process. The entire semiconductor industry is so dependent on this idea that it invests billions into it every year because it is so vitally important.

The faster you want a chip to go, the less time there is between every cycle. It takes time for signals to propagate across silicon. The smaller the window, The less workable area you have. An entire CPU wants to get clocked together, meaning you want all the components more or less running at the same speed, so they can work together efficiently.

At 10ghz with speed of light delays you can only move 2cm per cycle. And the propagation rate of electrons in silicon is even lower.

This is a reason multi-core processors have become more common. They're different time domains. Each processor core is at the limit of usable area within the time constraint. So to get more computation power you add more cores instead. Sadly most programmers still write single threaded programs. Only people who absolutely need performance bother with writing real multithreaded programs. So on your 64 core machine, you're probably only using one or two cores at any time. Realistically

Other people have already talked about temperature, so I won't.

The semiconductor industry has been shrinking chips for basically as long as it has existed. Look up Moore's Law.

In any case, the smaller the transistor, the more chips you can produce with each batch, they use less power, and run faster. Usually. Sometimes things don't always go right, but that's the general trend.

Something I don't see here among these (rather good) answers is that you cannot compare size between manufacturers. The numbers have some truth, but they are largely marketing.

See: https://en.wikichip.org/wiki/technology_node

With a smaller feature size, you make the chip cheaper, more energy efficient and you can/could bump the frequency.

You can fit more dies on a wafer. So every one gets cheaper. And smaller transistors use less energy. I'm pretty sure the high frequency stuff also gets 'easier' with less distance and material involved.

I’m not super well-versed in this field, but I know the basics. People are excited about 3nm processes because it allows you to fit more transistors on the same die or make smaller dies with the same performance as a bigger one on the old process. It also has reduced energy consumption, and thus reduced heat production. How exactly, I’m not sure.

Well, for a start, those 3nm are supposed to represent the feature size, not the transistor size. The feature size is like the resolution of an image (in fact, it is very very like), so as you reduce it, you can get more and more detailed things, but those things do not necessarily reduce in size. Thus you don't necessarily get more transistors from a finer process.

But then, the sizes you read about right now are not real feature sizes either. They are calculated by a complex algorithm that takes into account everything, from the cost of the factories to the chip's power dissipation, and only terminates on the computers of the marketing department. You can't expect to just read them and learn something useful.

Shrinking is better because it inherently makes electronic components more efficent and cheaper to produce in bulk.

However, if you ask me, i believe it would be nicer if for a couple of years developers and manufacturers shifted focus onto making better optimized software (mostly just get rid of all the bloatware) and hardware (bring dedicated sound and network chips back).

Smaller good.