More space for the power to dissipate over. (The power rating isn't actually much higher, because it's partly limited by diffusion out of the part. Which is limited by its aspect ratio, actually. Which is why 0402 resistors are relatively powerful for their area, and 1206s aren't rated much more than 0603s. Much larger and wider parts have higher ratings, up to a few watts for a suitably made 1218 or something like that.)
Obviously, 0402 is smaller, which is important for saving space, and increased frequency response (lower L and C) for RF (as in, 10s of GHz RF).
Besides thermal, the electromagnetic properties of a part depend linearly on size, because of the speed of light.
Tim