Nope, that would be Michael Plass (thesis title: "Optimal pagination techniques for automatic typesetting systems," though his line-breaking work is what showed up in TeX) and Frank Liang ("Word Hy-phen-a-tion by Com-put-er"). I wasn't there yet.

Metafont users can specify point size, boldness, slant, and whatever other parameters they choose (plus device-specific info like resolution) that can then be used in the simultaneous equations that determine the coordinates of critical points and shapes of pens used to draw the characters. So, for the smaller-font issue, the width of the pen may be a non-linear function of the font point size; ditto for the x-height, etc. In Metafont, it's the responsibility of the font designer / coder to handle it all; there's no automated algorithmic monkeying with the pixels other than what you write. This all becomes much clearer with a perusal of The METAFONTbook.