Well, you answered your first question. What changes things is that you know have the best 30 girls, if the team becomes medium, from that large team. You've emitted those 6 that maybe don't have a full or jumps to tuck, or aren't the best stunters. The team has a higher ratio of tumbling skills, and can maybe do some more difficult stunting.
To answer why you wouldn't have just gone medium (or small) in the first place- Many coaches would want to give those 6 girls (from large to medium) a chance to rise to the challenge of being on a level 5 team. In the big picture, could they be more successful in another division? Maybe, but many athletes DO rise to this challenge. Last year, I had a team of about 25 girls that were all level 3, and 8 or so that weren't. I made the decision to just go large, placing those 8 girls that, at the time, were not true level 3 athletes, hoping that the 8 that they would understand that they needed to step up and get those skills. I would say that 6 of them, by September, were true level 3. Did we always win? Of course not. But I gave those girls a chance to work really hard to be on a higher level team, and most of them met the challenge. Coaches can take leaps of faith, and in the end, it can make very hard-working athletes.