62bakes - One way they increase extension of the speaker is to put second woofer for the lowest bass only (higher frequencies filtered out by xover). For two way speakers it is called 2 1/2 way speaker (pretty much like adding subwoofer). I suspect that small drivers, being point source, will have more interaction with the room than large woofers where bigger percentage of the sound goes direct.
Distortion might be caused by by nonlinearity of the motor especially at max extension of the membrane. Most of drivers are designed as overhanged type where magnetic gap is narrow but coil is long extending outside of the gap. Some drivers (like in Acoustic Zen Adagio) have underhung motor meaning that gap is very wide and the whole (narrow) coil is inside of the gap. This scheme is more linear but requires drivers with very large magnets - more expensive. Some tweeters are made that way as well (to lower distortion at max power) including Morel Supreme.
