Smaller chips are faster because things are closer together.

Smaller chips are cheaper to produce because you can make more of them at the same time

Smaller chips consume less power and thus increases battery life on smartphones/laptops

Smaller chips produce less heat and thus can be either clocked higher for more speed or laptops/smartphones can be made smaller/thinner as it uses less cooling.

But most often the chips don't actually shrink, they just use the new production technology to put more stuff in a chip of similar size.