There are several good reasons why everyone should be as small as possible (i.e. large races should be shrunk twice and medium races should be shrunk once - so that everyone is the size of a gnome). This includes all pets as well.
When the characters are smaller, the EverQuest client has to draw less pixels - which then means higher framerate and faster response, or - in other words - lower lag. The difference can be significant, especially on large raids and when a lot of people are using pets.
Another reason is that sometimes the raid needs to fight in small areas to which a few dozen ogres just can not fit, no matter how hard they try. Sometimes the raid needs to move to or through small areas or very close to a wall - and the smaller everyone is, the easier this can be achieved.
There are very few situations where shrinks are not a good idea; two notable exceptions are the main tank when it's required by the tanking duties (more on this later) and zones that make it very difficult to move when shrunk (most notably the stairs in the Tower of Solusek Ro). However, unless the raid leader says otherwise, you should always assume that you should be as small as possible.
It is everyone's responsibility to shrink themselves. There are a lot of clicky items that can do the job for you. If you do not have one, you can ask gnomes to make Anizok's Minimizing Device for you. If you can not shrink yourself, ask someone in your group. If noone in your group can shrink, one person in the group (and only one) should send a tell to the raid leader, who will then most likely temporarily move a shaman from a different group to your group for the shrink.
Do not forget to reshrink after you are rezzed when you die.