I think it's only badly written software, gpu temperature starts to ramp up even with wow in a post stamp sized window.
The game aims to redraw as fast as it can to give you the best possible gaming experience. Resolution is only a small part of the entire picture. The entire OS and the driver stack is programmed in a way that a high-performance GPU mode is turned on when an application requests certain functionality.
So yeah, I agree with you that your system should be able to run the game more efficiently under this scenario. However, as this scenario is far from being common (in fact, its a pathological case nobody cares about), the OS is not optimised for it.
That said,
Just because you have a small window doesn't mean the game is rendering at the window size.
Actually, it usually does.
Usually games are rendered at the resolution set in the game then the image is re-sampled to fit the window.
No, the games are rendered at the resolution of their main framebuffer, which incidentally is the window. If the game uses a different resolution internally, then it is indeed badly coded. Doing something like that would serve no purpose whatsoever and would actually require additional work from the programmer. Which would be a really silly thing to do.
It wouldn't be practical to write the game at every arbitrary resolution.
3D APIs are resolution-agnostic. If you use, say, OpenGL the way it is intended to be used, you can draw at any resolution.