If you think about it (not to come off like Cliff Clavin - oops, too late), let's say you're in x gear. No matter what size your tire, the distance travelled in one revolution of the crank will be the same. A smaller tire will advance y inches/centimeters/what have you, the larger tire will go the same distance, with a little left over. Think of it if you unroll the wheel into a straight line - helps visualize it.

As for practical application, I ride my road bike maybe 5% of the time, but when I do, I notice the weight difference, the speed difference, and relative ease in which I am able to attack hills. I like it, but I'd rather know that I can off road whenever I want to, so wheel diameter and bike weight are unimportant to me.