But they only use what they need to hit the target temperature?
Sort of but not really.
It's basically what Andy said but to elaborate its the spinning up of the compressor which uses a large amount of energy for little cooling/heating gain. So if the compressor is turning off every 15 mins because its either oversized or in the incorrect mode, it uses a ton more energy. All modern air to air heat pumps should be inverter compressors which means they can modulate down. However most only have a few modulation modes which are usually tied to fan speed (low/mid/high) and they can be pretty unsophisticated.
The other thing is that as an oversized unit is cycling, the temperature will also be going up/down 2/3 degrease as the units kicks in, cools (or heats), overshoots, shuts down and waits for the temperature to rise, rinse and repeat. Where as a correctly sized unit will maintain the target temperature in a steady state which is more comfortable. With the increased comfort of a steady state temperature, you can also get away with a higher temperature in cooling mode or a lower one in heating mode. That is because you don't feel those peaks and throughs in temperature.
None of us can categorically say how big/small a unit
@dlockers should get, he needs to do a quick heat loss(gain) calculation to find out. The other factor to consider which will not show up on a heat loss(gain) calculation is the solar gain via the glazing in the summer. So if its borderline of the capability of the unit, then size up but don't go nuts for the reasons set out above.
