undersized: will run forever and take very long to cool - inefficient
oversized: will not run long enough, stop right away, only to start again shortly after. So lot of on/off cycles. Also inefficient. Will also never give the coil a chance to collect much water, so the humidity control won't be very good.
I'm sure there is more to it too but that's the jist of it.
I learned about the oversizing factor with my 1 ton AC unit I use in a 70 square foot room.