firstly, the mp3 created will be the size you choose in iTunes - preferences - general - import settings.
secondly, the function would most commonly (at least for me) be used to change formats (for example from aac or a lossless format to the more widely supported mp3 format).
to judge how much quality would be lost going from a 10mb file to a 6mb file is a whole huge can of worms. if it's the difference between a 256 aac file bought from the iTunes store to a 128 mp3, some people would say the difference couldn't be heard by the human ear. others may say both lossy formats are horrible and only lossless is good enough.
still others may say the smaller file will sound noticeably worse but more because of the quality of iTunes as an encoder and using a lossy format as source in the first place.
hope this helps!