how does an android rom decide the amount of phone memory? I used to mod symbian roms, and would like to know if it is possible in android to allocate extra internal storage memory, by removing unneeded apps, as packed by OEMs.

[NOOB ALERT]

if I manage to find a custom ROM that is smaller in size, does it mean I get more free memory?
On an Android device, the internal storage is split into multiple partitions. The data from the custom ROM is stored on one partition, and the apps and user data on another. (Generally there are a few other partitions as well.) Because of this, installing a smaller custom ROM doesn't directly give you more free space for data, because they're on a different partition. But if you can make a smaller custom ROM, it allows you to repartition the storage to allocate more space to user data.

Repartitioning the storage is quite risky, as you have to know exactly how large the custom ROM is going to be. If the system partition is too small for the ROM, it will go wrong when or after you install it.

I believe it's more common to simply add some useful apps to the custom ROM, to make it up to a similar size as the stock ROM. This way, you can avoid installing some large apps in the userdata partition, giving you more space without repartitioning. Since updates to pre-installed apps get installed in the userdata partition, not the system partition, even including up-to-date versions of those apps in the custom ROM saves space.