When it's cranked too high, the world feels much smaller even though it takes just as long to walk anywhere. Probably because my mental understanding of the world is so fuzzy that it allows my brain to overestimate how far apart the more concrete nodes are like cities. Walking the path from Balmora to some quest location and being distracted half the time with cliff racers and dungeons doesn't really establish how far I walked in my head. It could have been kilometers.
But looking at the whole 3D model of the world removes all of that fuzzy uncertainty that made the world feel big. The best example of this is looking at all of Vivec in your viewport. Without the fog and short view distance, Vivec looks so small despite the amount of times I got lost in it as a kid.
There seems to be a healthy balance of fog + view distance.