Your piece of fabric has two directions: width and length. In case of a square, these dimensions are the same.
Let's use a rectangle as an example, maybe that will make more sense. Let's say the size of the fabric rectangle is 3" by 5" - Now you sew another rectangle to the first one along the 5" measurement. You will use 1/4" seam on BOTH pieces and both rectangles will be 2 3/4" x 5". Sew another rectangle to the bottom and now your center piece will be 2 1/2" x 5" (Notice how the 5" measurement has not changed yet).
Now imagine that you sew a 3" x 5" piece to the end. This will leave each piece at 3" x 4 3/4" Sew the other piece to the other end and your center patch will be 3" x 4 1/2" (Notice how the 3" measurement hasn't changed)
If you sew pieces all around then you will use up 1/4" on the top, and 1/4" on the bottom (and this measurement will be subtracted from the height). Then you will use up 1/4" on the left side and 1/4" from the right side (and this measurement will be subtracted from the width).