Smaller pumps use less electricity to get the same job done, so generally speaking smaller is better. However there are a couple of things that require at least a certain amount of power, so it is possible to get a pump that is too small. For an in-ground pool you generally need at least 1/2 HP full rated or 3/4 HP up rated to be able to prime the pump and vacuum properly. For any reasonably sized residential pool without water features that is all you need. Anything more is a waste of electricity.
Some of the things that may require the use of a larger pump include: waterfalls, in floor cleaning systems, spa jets, very large pools (say over 30,000 gallons), high bather loads (such as in a public pool), solar panels placed well above water level, and fountains.
Some of the things that may require the use of a larger pump include: waterfalls, in floor cleaning systems, spa jets, very large pools (say over 30,000 gallons), high bather loads (such as in a public pool), solar panels placed well above water level, and fountains.