Tattooing: First a Design Then a Stencil
To apply tattoos on the skin, the tattoo artist needs both a good clear reference of the actual design, and well drawn stencils (line drawings) as the "blueprint" for the actual tattoo.
Stencils or Line Drawings
Stencils, which are also called "line drawings" or "liners" are what a tattooist needs to apply the tattoo design to the skin. The line drawings are run through a thermofax machine which results in the line drawings set to carbon paper. The tattooist then presses the carbon line drawings to the skin and applies a liquid solution. This provides a "blueprint" on the skin, which serves as a guide from which to create the actual tattoo.
Stencils are a way that the tattoo flash artist (artist who creates the design on paper) communicates the intended artistic nuances of the design to the tattoo artist (who actually applies the tattoo on the skin). Like any type of communication, it is a "two-way conversation." Not all line drawings are created equal. Some tattoo flash artists put more "information" into their design stencils and some put less. Likewise, tattoo artists use stencils differently. Some will follow the stencils provided exactly as they were created; others may choose to alter the stencils before using them to create tattoos on the skin.
Almost all tattooists use line drawings. There are only a very few select tattooists capable of freehand designs. Even they will often use a pen directly on the skin before they start to apply any ink. They may not be using any "reference material", so to speak, but to create on skin what they have in their mind, they still create the "stencils" on skin with a pen. It would be the best way to ensure that what they imagine will be the final actual design.
Stencil to Skin
Skin is a "living canvas" and has its own properties as a "medium" for art. There are general "rules" in tattooing (do's and don'ts) for how to apply a tattoo on the skin for it to look good and stay looking good over time. One of these rules applies to how "tight" a tattoo can be and still "hold up over time".
On skin, ink fades and ink spreads. How well the tattooist applies the ink can definitely effect these things, but following the "rules" also greatly effects the results. If a design is applied to the skin that is too "tight" (too much "ink information" in too small a place, the end result will be an abstract "ink blob" on the skin.
If a tattoo design is applied on the skin at a much smaller size than it was first drawn, then the black lines would run together causing the whole design to look like big ink blobs instead of an actual design. So the general rule is that if you try to put too much detail into a design that is too small to support the detail, the tattoo will not hold up well over time.
In general, tattoo designs can be "scaled up" (made larger) with no problem. However, to make the tattoo design smaller on the skin than it is, most likely the tattooist will need to alter the design (stencils) to leave out some of the detail. Larger designs can, therefore, be made smaller, but this takes some extra work on the part of the tattooist (and of course depends on his skill level to do this job well).