The iPad mini rumors have been going on a good long time. Here at TUAW, we've long since moved past "will they or won't they." I want to address the "most likely iPad mini" scenario that many pundits have agreed upon. A 1,024 x 768, 7"-ish unit offers a budget, non-Retina scenario that allows minis to run existing iPad software without modification.
At seven inches, an iPad mini is workable, as it just (barely) allows the device to retain its base interactive integrity. As Rich Gaywood has long since pointed out, a 7.85" device offers a much better compromise than a 7-inch model, but more about that in a bit.
The Retina iPhone was first introduced with the iPhone 4. Its 960x640 display enhanced the screen scale, offering four pixels where each previous generation had one. The point density, however, did not change.
"The term 'points' has its origin in the print industry," writes Apple, "which defines 72 points as to equal one inch in physical space. When used in reference to high resolution in OS X, points in user space do not have any relation to measurements in the physical world."
Points are the virtual representation of screen geometry, which developers use to address graphic space on the device. With Retina, the iPhone pixel density moved from 163 ppi to 326 ppi, but the point density continued to use the same addresses of 480 x 320 on a 3.5-inch screen. Thus, the physical space on-screen remained static to developers.
The base 44 x 44 point hitspot is about a quarter inch (0.27 inches) by a quarter inch on that 3.5-inch (diagonal) screen. This size is the basis for the recommended human touch hit region in Apple's Human Interface Guidelines. It was unaffected by the new Retina technology. And, with the bump to the iPhone 5, the physical geometry remained the same as the vertical point space expanded to match the physical extension of pixels.
This is similar to the iPad and iPad Retina. The iPad's screen density is slightly different (264 pixels per inch for iPad Retina vs 326 pixels per inch for iPhone Retina) but the actual size of 44 pixels is approximately the same physically, about a third of an inch (0.33 inches) for the iPad.
Now, consider taking the iPad, with its 9.7-inch screen and shrinking it down to seven inches. That's 72 percent of the original size. The 44-point touch area goes down from about a third of an inch to juuuust under a quarter inch, about 0.24 inches. That's close to the iPhone hit region, but not quite there.
Everything else squeezes down ever so slightly -- fonts and graphics appear smaller, and everyone over the age of 45 moves the unit a bit farther away. Still, any app that better fosters viewing (I'm thinking of apps like PuzzleCraft that I find impossible to read on the iPhone screen) should improve moving from iPhone to iPad mini, even at a guess of about 183 ppi.
Basically, from a developer point of view, a 7-inch iPad mini would just barely work physically -- possibly allowing developers to ship to the new unit without any coding or resource changes. If the size were to drop below that though, Apple's Human Interface Guidelines -- and the apps to support that -- would have to change to accommodate.
As far as physical dimensions go, seven inches is the minimum size Apple could ship for a 1,024 x 768 display while retaining HIG integrity. A 7.5-inch screen would come closer to matching iPhone physicality, and eight inches would about equal it. In fact, 7.85 inches would be perfect.
That's because 7.85 inches represents the same PPI as non-Retina iPhones (163 ppi). As Rich Gaywood points out, the screen could be cut from the same master sheet of glass on the same manufacturing process, just twice as big in each dimension.
At 7.85 inches, the 44-point touch target is the exact same size on the iPad mini as on the iPhones, the screen graphics drawn to the same physical scale, and so forth. In fact, that's exactly what today's rumors seem to suggest will happen.