This is what I found:
http://www.cpsc.gov/info/toysafety/trackinglabel.htmlIt does not mention a required size, just that it is legible and visible.
Once the FTC site is back up it may be a good idea to follow their guide lines for label sizing.
I also found this: Are there exceptions?
Congress modified the requirement for tracking labels with the phrase “to the extent practicable,” recognizing that it may not be practical for permanent distinguishing marks to be printed on small toys and other small products that are manufactured and shipped without individual packaging. In those situations, the package or carton in which the products are shipped to the retailer should be marked.
Hats, booties, mittens would be exempt from a sewn in label, but the tracking info must be sent with it so if you do this - they could really be any size for such items.
I will be using the 8 to 10 pt font size with something like Times New Roman because I think it is easier to read. If you get much smaller than 8 pt font it is difficult to read. This would make my label about 1 3/4" in one direction.
I hope this helps!