How does increasing the size of a jet engine make it more fuel efficient?
The efficiency issues are as follows. 

For a fixed amount of mass flow rate through a work-extracting thermodynamic process, one large engine is more efficient than two smaller ones because the pair of smaller engines present more interior surface area relative to the mass flow through them than the single larger engine. The more wetted area inside the engine relative to the mass flow, the greater will be the frictional losses. This drives the designer toward fewer and larger engines and away from more numerous and smaller engines. 

In addition, there are aerodynamic losses associated with each engine nacelle/pylon assembly on the wing which are minimized by reducing the number of engines installed per wing.