That's quite an open-ended question, but one way to kick off a discussion
Some musings and thoughts:
- Capabilities - This is quite mission-dependent.
- Longevity - Smaller sats tend to be in lower orbits (a generalization) which means shorter missions (drag brings them down sooner).
- Reliability - Since microsats are usually in lower orbits with shorter duration missions, less reliability is acceptable. One practical implication is that components that are less rad-hard and less long-lived (i.e., not necessarily formally space-qualified) can be used. That means that significantly more widely available and more capable (denser, more complex) electronics are flyable. First, radiation is typically less at lower altitudes (though if they pass regularly through the South Atlantic Anomaly or use a polar orbit, that's not so); second, the extremely long lifetime that derives from high-reliability would likely be wasted due to the short mission duration (again, a generalization; if you REALLY can't afford to lose the spacecraft early in the mission, then the calculus changes back to higher rel).
- Volume - Microsats are typically classified by mass, and since they are small, volume is usually small also (there are always exceptions - the Echo birds are an outlying example).
- Power - Microsat just can't provide much, either in battery or in solar array area. But a lot of missions don't need much.
- Attitude control - This is much easier for microsats on the high end of the mass definition.
Many people think of cubesats as a specific example of microsats, but the larger cubesats are on the low end of the microsat mass definition, which spans an order of magnitude.
The smaller ones are quite useful for relatively inexpensive testing the feasibility of specific concepts - performance of a specific sensor or antenna or deployment method or operational approach (e.g., swarming or short-range intrasat comms techniques or electric thrust or...). On the upper end, a microsat can technically mass ~500 kg; that's half a ton. Such a vehicle can carry larger batteries, solar arrays, multiple instruments, even active attitude control or a small propulsion system. Now you're talking longer, more intricate missions, perhaps higher altitudes - and noticeably more money.