There was recently news that the smallest known star had been discovered. The star itself is orbiting a larger star, and was detected because it periodically eclipsed its larger companion. Planet hunting telescopes search for such periodic dimming, and in this case, it was ascertained that the dimming object itself was giving off some light, and that rather than a massive gas giant planet, it was a small star. Other measurements discovered that it had a radius slightly smaller than Saturn, and was about 8 percent the mass of the sun. This is so far, as small in mass and diameter of any detected star. The star itself is not that interesting, its parent star is several magnitude too dim to be visible to the naked eye, and is located far to the south in the constellation of Pictor. There may turn out to be many stars this small, maybe even a fraction smaller, so we don't need to focus on this star, EBLM J0555-57Ab (the name doesn't really elicit poetic imaginings), as much as on the question of how small a star can get, and why.
There are three main questions: If this star is the same diameter of Saturn, why is it 100 times more massive? Why do stars need a certain size in order to be stars? And is there any way a star substantially smaller than this, in mass or radius, could exist?
The first question involves some pretty simple physics: past a certain point, more mass leads to more density, rather than more diameter. There is a threshold, somewhere around the mass of Saturn, than any added material just adds more gravity and more compression, and an object can grow over 100 times in mass without its dimensions changing. This is true from gas giants, through brown dwarfs and on to the smaller red dwarfs. At a certain point, the density of the star can't increase, for two reasons: the core of the star can't be compressed further, and it produces energy, causing heat, causing expansion.
Main sequence stars produce energy through the fusion of hydrogen into helium. To do this, they need a certain pressure and temperature at their cores. As a protostar contracts, it heats up, and this heat will eventually lead to nuclear fusion. This is a self-correcting process: as the star undergoes fusion, the heat allows it to expand, which relieves some of the pressure, slowing down the rate of fusion. A star needs to have around 8% solar mass to produce heat in this fashion. Below that, the pressure isn't great enough to sustain fusion. That is why the discovered star is believed to be one of the smallest possible.
But might there be some sort of way that a star both smaller in mass and radius could produce fusion? There is, theoretically: increasing the density of the star. Currently, most stars are made of 75% Hydrogen, 24% Helium, and 1% "other". In small stars, the 1% "other" doesn't take place in energy producing reactions, but it does increase the density. Over time, the universe is getting denser as larger stars convert hydrogen into heavier elements, and the interstellar matrix becomes enriched with heavier elements. This is also the case towards the center of our galaxy, where metallicity is higher. So lets go to a place or time where we have a different interstellar matrix, and we have a star that is (say) 40% Hydrogen, 40% Helium, and 20% heavier elements. It might have a smaller mass than our current champion, but that mass is going to be much denser, and then is going to contact more because of gravity. How much smaller of a star can we get by increasing density?
For several reasons, while I think slightly increasing density could make a smaller star, I do not think we can squeeze too much juice from the turnip that way. Since hydrogen is the only active energy producer, and the other elements would be inert in terms of nuclear fusion, the less hydrogen there is, the less likely two hydrogen nuclei will meet and fuse. In addition, at a certain point the gravity of the star will sort the elements into layers: most of the iron, silicon, oxygen and carbon will be in the hottest core, while the lighter helium will be in a layer above that, and the lightest hydrogen will be on top. Some small amount of hydrogen might be present in the dense, hot core, but the amount of fusion would be minimal.
While density can probably decrease the mass and radius of a star a little, and there are probably stars marginally smaller than the newly discovered one, stars probably can't get much smaller. It would make an interesting science fiction idea: an ultra dense star, maybe 2% the mass of the the sun, with a ultradense plasma iron core and a thin layer of slowing fusing hydrogen on top of it, a star maybe the radius of Neptune. But my own guess is that such a thing would be improbable for the reasons mentioned.
Of course, as we learn more about astrophysics, there may be other processes where stars can create energy. And there are stellar remnants that are smaller in radius (but not in mass). But for the most part, the newly discovered tiny star is probably near the smallest that a star can be.