If Falkreath wasn't a hold, the entire chunk of land would have to be divided between Whiterun, the Rift and the Reach. They'd be disproportionately big. Falkreath is close to the border, in a very good place to have control over the southern part of Skyrim - its size is irrelevant. It's not smaller than Winterhold or Dawnstar, anyhow.
I don't have a problem with Falkreath being a hold capital; I just think the town should be bigger. All towns in Skyrim should.
Agreed. One thing though, why doesn't it have its own loading cell? For a city as important as Falk is, why doesn't it have walls surrounding it?
It is one of the most important lumber exports in Skyrim, especially for the Imperials.
On top of that, it is one of the most important roads that lead to Cyrodiil. Why have the Imperials not SUPER reinforced it. Whiterun is borderline Imperial/ Stormcloak, so why are the Legion taking any chances?
Reinforce Falk before stormcloaks turn Whiterun and march on Cyrodiil!