I regard it as lego's be all and end all of fortress's for the Imperial Guard. While it has a relatively small scale - it would at least be vaguely believable to have one of the lego ships alongside it - unlike the forbidden island, released at the same time.
Some of the arguements above about it not being able to hold it's own against lego's ships are quite irrelevant when you consider that any lego ship could happily take on any of the lego islands (including the larger 6273,6277 etc)
The reason for having the island sets on a smaller scale is quite economically visable really - the average kid will generally get one large set per year (christmas, birthday etc) and generally a handful of smaller sets. All of the other lego themes upto this time had very few large sets (500+ pieces), in general two being available in each year for each sub-theme.
I mean really, how many of us really had multiple ships and large islands before becoming AFOL? And having half a theme never made it as playable as it could be - what are pirates when there are no soldiers to hunt?
I get the impression that over this period lego was also trying to make the larger sets more affordable to the less effluent children, as can be clearly seen in the castle line over following years with sets like King's Mountain Fortress and Wolfpack Tower. Lego was clearly making a break from larger sets here. The pirate theme (particularly the large islands) would always also face internal competition, I mean do you really need a fortress when you have a handful of smaller sets?
Of course, all of this has very little to do with realism - but I don't think lego has every been to overly concerned with that (trading it off to economics and playability). I don't believe lego was ever intending to have a very high amount of overly large sets in any theme, and pirates are definately one of the themes with the highest concentration (most castle and space sub-themes had one very large set each, often not even to the same scale as the pirate sets).