Will a short length of smaller size pipe affect flow rate or pressure?
You're right to be suspicious. I'm not sure about code, but to me this just looks unprofessional. Narrower pipe does result in pressure and flow loss. Expansion also has the potential to create eddy currents which could accelerate erosion of fittings on the output side of the final 1" fitting... that said, contraction/expansion happens normally at most fittings anyway. The good news is, this is such a short section of pipe, that even if you absolutely require a 1" main the effect is entirely negligible. Since you effectively have a 3/4" main inside the house, doubly so.