VI Icon
How to Make icons smaller than the entire square
First, draw the border for the icon in the B&W icon view. Be sure to align the icon to the wiring terminals by using the Show Terminal check box. This defines the icon outline. If you have no border drawn in the B&W view, it defaults to the whole square (in my limited tests, you get a "no outline in B&W view default will be used" dialog). The icon border will actually be the largest of the drawn areas in the three icon views. So actually, you need only draw a single dot on the B&W view to define your 256 colour drawing as the border limit. Something must be drawn in the B&W view to get the selection border for the icon on your diagrams to conform to the drawn outline (is this a useful feature? seems like you could have nothing drawn in this view by defaults and have it still work).
Second, Click on the 256 colour icon view (if that's what you use), and click Copy from Black & White to get your border. Then finish drawing the icon to your liking, link it up, and presto, small icon. Wires to border, transparent outside, etc. You can even make irregularly shaped icons. The white area outside will be transparent in your diagrams. Interestingly, if the border you define is not contiguous, the inside of your icon will also be transparent (you can see a wire go all the way to its connection point (visible as a little cross in the "show terminals" icon view). You can actually have multiple non-transparent areas in your icons if you wish. Very cool! You could have a wire pass between two blobs to represent some subtle transformation on the data if you really wanted to go all out, but this actually requires drawing wires between the connection points on the icon to make them look contiguous.