As has already been said the game is a simulation, and the term "division" is used loosely. Everyone knows that IRL different nations constructed their ideal divisions slightly different from each other. But nations also constructed some of their divisions differently, particularly as the war progressed, and units took losses and were re-organised, or were upgraded, so they were unable to meet the "ideal" composition that the commanders would prefer.
The Italian Ariete Armoured Division No. 132, formed in 1939, was initially made up of a motorised infantry regiment, a tank regiment, an artillery regiment, and additional divisional support units. (See
http://en.wikipedia.org/wiki/Italian_132nd_Armored_Division_Ariete)
The German 1.Panzer-Division in 1939 comprised an infantry brigade (one motorised infantry regiment and a motorcycle battalion), an armoured brigade (two tank regiments), an artillery regiment and other support units.
In late 1939, after the Polish campaign, an additional infantry battalion was added to 1.Panzer-Division. Following their involvement in the French campaign the armoured brigade was reduced to only one tank regiment (Panzer-Regiment 1 remained, Panzer-Regiment 2 transferred to the newly formed 16.Panzer-Division), and a further infantry battalion was added to bring the strength up to two infantry regiments before the Division took part in Barbarossa. (See
http://www.feldgrau.com/PzDiv.php?ID=1)
The British 7th Armoured Division ("The Desert Rats") formed in 1940 comprised an armoured brigade of three cavalry regiments, a tank battalion, an artillery battalion and support units. (See
http://en.wikipedia.org/wiki/British_7th_Armoured_Division)
The reference to the number of "regiments" used in a typical division for certain countries by Terminatrix is not entirely helpful in identifying the relevant size of each country's divisions. This term is not actually used in the military formations of many countries, and the structure of regiments used in Britain and other Commonwealth Countries (which mainly served an administrative purpose, rather than operational) was not the same as in others such as Germany or US. Wiki contains the following definition:
A regiment is a military unit, larger than a company and smaller than a division. Depending on mission, country of origin, and makeup, a modern regiment is similar to a brigade in size in that both range from a few hundred soldiers up to 2,000-3,000, depending on branch of service and method of organization. The modern unit varies in size, scope, administrative role from nation to nation, and within the armed forces of some nations.
Nevertheless, despite the differences between countries, a generally accepted hierarchy of military units is given in Wiki at
http://en.wikipedia.org/wiki/Military_unit, whereby divisions consist of 10-2000 men and are led by a major-general (or the equivalent rank). HOI has adopted this standard.
The fact that in WWII Italy may have organised into units called "divisions" which were half the numeric size of the divisions of some other countries is not relevant. Two Italian divisions fighting alongside each other would therefore be roughly be the same numeric strength as a German division, and for simplicities sake HOI determines that an Italian Maj-Gen would command a unit the same size as a German Maj-Gen. The game calls all of these basic level units "a division", even if IRL it might have been called/comprised something else.
While it is accepted that it is possible to mod the game to provide a different set of infantry units to represent large and small divisional formations for different countries, what HOI will not allow is to change the command structure. So those ITA "small INF" units would be commanded by a Maj-Gen, while the GB "large INF" would also be commanded by a Maj-Gen. Even if IRL the ITA units might have been commanded by the equivalent of a Brigadier-General.
Taking larger groupings of units, an ITA Lt-Gen is restricted to commanding a corps of three "small INF" divisions (say 24,000 men), while a GB Lt-Gen can command three "large INF" divisions (say 48,000). Since battles in HOI are fought over provinces covering 100's km, they normally involve several corps, stacked in the same or adjoining provinces.
In the game the ITA's already have three disadvantages when fighting GB in North Africa:
1. Their Generals are not as good
2. They have a mixture of MIL and INF
3. Their doctrines/techs are not as good
If you introduce a major stacking penalty against them if they have army-sized forces of up to 150,000 men (say about 18 "small" divisions) led by a Gen that they want to deploy in battle against 50,000 British troops defending Tobruk (3 "large" divisions"), then you are going to weaken them in a way that is not justified. The chances of them scoring any victories whatsoever would just disappear.