I see todays phones as miniature tablets, and its not hard to see why (eg/ Grid 10 vs Grid 4).

I'd place the tablets into 3 categories; pocketables, portable, and spacious.
It seems better to name them as Phones, Pads, and Tablets.

Pocketables is basically phones that are less than 5.0 inches. It'll give you a decent amount of screen-estate (3.7" 4.0" 4.3" 4.5") but be limited in many ways. The maximum size for comfortable touchtyping and a bearable bulk/heft seems to be roughly 4.5 inches for most people.

Portables are pads (think of a little notepad) which give you more screen-size and can do several things better/easier. But the experience isn't too different than a phone/pocketable. They aren't pocketable, but still extremely portable in purses, coat pockets, wide-rear pockets, car-docks etc. This is where the 6.5" to 7.5" size comes into factor. Any device that is more than 4.5" but less than 6.5" generally seems like a waste because its not pocketable but portable however the screen size isn't large enough to offer much of a different experience.

Spacious tablets are real tablets (think of a large heavy book) which are supposed to displace your netbook and laptop you "lug" around for leisure and work. The large screen gives them the chance to offer a completely different experience to pocketable phones, a good thing, but still resembles the portable pads. So far they are appalling in displacing ultraportables for work-related activities, but this can change in the future (Windows 8, better QNX/Android/iOS). These are devices with 9.0" to 11.0" size and are meant to be carried under your armpit, or in your backpack/suitcase. So they are more portable than laptops/netbooks but not portable enough to be carried in different means. Any tablets that are sized 7.5" to 8.5" generally seems like a waste because its not portable in purses/large pockets or dockable, and still lack the larger screen for a differed experience.

Side note, people with large hands/fingers (me) and a spacious car dock may be in luck as an 8.5-8.9" tablet with shaved bezel might still be "portable" (not lugged) but give you just enough screen estate to have a (spacious) "tablet" user interface rather than a (portable) "pad" user interface to really offer a distinction to your large handheld/pocketable phone. I've come to term this as a Padlet.

EVERYTHING comes down to your needs. If you need the extra screen for a more desktop-like internet browsing than a tablet is a must, if you cannot bare lugging around a laptop sized device than a pad is more convincing. If you are gifted and want the best of both worlds, then a padlet may be your thing.