I like to use all of my scraps that I can, and after experimenting with crumb blocks and crazy-style piecing, I have decided that 1.5 inches square is about as small as I like to go.
I still save some of the smaller pieces in a jar - I hate to throw them out, and who knows, maybe sometime I'll find a use for them. I have in the past used small scraps for stuffing stuffed animals and pincushions.