Meaning of "run small"

This is a common retail clothing term. The phrase "run small" in this context means that they tend to be smaller than most brands with the same label size.

Clothing sizes tend to depend on the brand. A pair of Levi jeans labeled as medium will most likely not be the same size as a pair of Wrangler jeans that are also labeled medium. When this occurs, the phrase "runs small" is used to express that Levi's jeans tend to be smaller than most brands with the same labeled size. "Runs large" also is also used in this way.

"Run" in this usage is simply shorthand for "to be manufactured". So "they are manufactured small".