A closer look at the specs sheet, and you'll see Sony have managed to fit in the same CPU, camera, memory, and internal storage into a size that's truly compact:
Dimensions: 127 x 64.9 x 9.5 mm, 137g
Display: 4.3" Triluminous IPS display of 720p resolution, 341ppi
Chipset: Qualcomm Snapdragon 800; quad-core Krait 400 at 2.2GHz, Adreno 330 GPU, 2GB RAM
OS: Android 4.3 Jelly Bean (planned upgrade to 4.4 KitKat shortly after launch)
Camera: 20.7 MP, Carl Zeiss optics, optical image stabilization, autofocus, LED flash, 2MP front-facing
Video camera: 1080p @ 30fps video capture with both cameras
Storage: 16GB built-in, microSD card slot with support of up to 64GB
Connectivity: NFC, A-GPS+GLONASS, WLAN (2.4/5Ghz) a/b/g/n/ac, microUSB 2.0 (MHL), BlueTooth 4.0 LE
Battery: 2,300 mAh
Misc: FM Radio, built-in accelerometer, multi-touch input, proximity sensor
Colors: Black, White, Pink, Lime, Yellow
The only thing that didn't make the cut is the display resolution, which has been cut down to 720p, and the battery, which has been reduced to 2300 mAh - the same as on the previous Xperia Z flagship. Luckily those seem to balance out just fine and the Xperia Z1 compact promises pretty good battery life.
The Sony Xperia Z1 Compact is expected to hit markets next month. Its pricing wasn't specified, but Sony confirmed it will slide between the Sony Xperia Z1 flagship and its Xperia Z predecessor.