I've gotten a lot of e-mails asking this, so here's the lowdown:
The FIG decreased the team size (from seven members in 1996 and previously and six in 2004 and 2008) to allow for more individual competitors.
The overall number of competitors is still 98, but now there are 12 teams of five members each, with 38 individuals qualifying through various means (earning an individual medal at the 2011 worlds is one way to do it). In 2008, there were only 26 individual competitors, and some very talented world medalists from smaller countries failed to qualify, so this is an effort to rectify that.
Though the reasoning behind it is valid, I disagree with the outcome, because it forces the US and other strong countries to leave yet another potential world medalist off their Olympic team. (One example: Alicia Sacramone did not make the US team, but could easily win a medal on vault.) It also dilutes the team competition even further -- now there are only four routines in Olympic prelims, and three in finals. I want to see more gymnastics than that in a "team" competition. There has to be a better way to make sure the top athletes, from big and small countries, all qualify to the Olympics.