I am sort of the expert on this here and am feeling verbose on a week in which Lyme Disease is giving me a welcome break!
General principles that I follow (trade secrets here - if you are a flute maker - avert your eyes):
General principle - farther up the hole the smaller it needs to be. Farther down the larger. There is a useful range in terms of placement and fingersize for each hole, and systematically.
I locate the G and the C# holes in “permanent” ideal locations, then move up and down the other 4 as needed, using the above principle. Usually I space these evenly as that is more comfortable for the hands. This is challenging for the bottom hole!
Holes need not be straight in line to be playable. I find arranging them in arcs, including spacing the middle finger farther away from the hand helps. This brings the hand closer to the 3rd fingerhole.
Where it gets complicated is when the fingerholes have to play the second octave, or if one wants to get a strong bottom D on an instrument, or in my case - both of these desires fulfilled. This has involved years of iteratively tweaking my flute designs and considering every flute a prototype for the next. That I didn’t number my flutes will mess it up for the musical historians of the future to sort out how I did this - but I had to leave them with something to do!
Generally get the first octave to play in tune with itself and then see what you can do to correctly tune the second octave with respect to the first. With holes with no undercutting on a taper bored flute, the 2nd octave will play in flat, especially at the top. Undercutting the holes, sometimes steeply, will correct this. It depends upon the bore as well. See Benade’s Musical Acoustics book on how to also work with the bore on adjustment of tuning between octaves. He discusses chambering quite well.
Tuningwise, with respect to a tuner, the 2nd octave should “look” about 20-30 cents sharp to sound in tune.
To answer your question - smaller holes improperly designed do minimize the tone some. This is overcome though once the flute is ergonomically designed for the player who relaxes more into it and can pleay it easily. Undercutting holes opens up the tone tremendously which is how I get my small handed versions to play just as well as my regular handed versions.
I’ll answer any additional questions (including other makers - it would be nice to discuss something real here) as time allows.
Casey