What is the smallest known star in the universe and why do scientists believe stars can't be much smaller?

The smallest stars are red dwarves.

Currently, the smallest-known star is the binary red dwarf labelled OGLE-TR-122b. This binary system is in the Carina Constellation.
https://en.wikipedia.org/wiki/OGLE-TR-122

The smallest known star right now is OGLE-TR-122b, a red dwarf star that’s part of a binary stellar system. This red dwarf the smallest star to ever have its radius accurately measured; 0.12 solar radii. This works out to be 167,000 km. That’s only 20% larger than Jupiter. You might be surprised to know that OGLE-TR-122b has 100 times the mass of Jupiter, but it’s only a little larger.

https://www.universetoday.com/25348/what-is-the-smallest-star/

The limiting factor with smallness of stars is that they need to be big enough to fuse hydrogen into helium. The generally quoted figure is about 8% of our sun's mass.

The smallest theoretical mass for a star to support nuclear fusion is 0.07 or 0.08 solar masses, so smaller stars are out there.

https://www.universetoday.com/25348/what-is-the-smallest-star/

Discovered back in 2017, EBLM J0555-57Ab

The smallest star yet measured has been discovered by a team of astronomers led by the University of Cambridge. With a size just a sliver larger than that of Saturn, the gravitational pull at its stellar surface is about 300 times stronger than what humans feel on Earth.

The star is likely as small as stars can possibly become, as it has just enough mass to enable the fusion of hydrogen nuclei into helium. If it were any smaller, the pressure at the center of the star would no longer be sufficient to enable this process to take place. Hydrogen fusion is also what powers the Sun, and scientists are attempting to replicate it as a powerful energy source here on Earth.

These very small and dim stars are also the best possible candidates for detecting Earth-sized planets which can have liquid water on their surfaces, such as TRAPPIST-1, an ultracool dwarf surrounded by seven temperate Earth-sized worlds.

The newly-measured star, called EBLM J0555-57Ab, is located about six hundred light years away. It is part of a binary system, and was identified as it passed in front of its much larger companion, a method which is usually used to detect planets, not stars. Details will be published in the journal Astronomy & Astrophysics.

https://www.cam.ac.uk/research/news/smallest-ever-star-discovered-by-astronomers

An international team of astronomers, led by the University of Cambridge, has announced the discovery of a low-mass star, called EBLM J0555-57Ab, roughly the size of the gas giant Saturn, making it the smallest star yet discovered.

EBLM J0555-57Ab is part of a binary stellar system some 600 light-years away.

Also known as 1SWASP J055532.69-571726.0Ab, the star is about 85 times more massive than Jupiter and has a radius of 0.84 Jupiter radii (comparable to that of Saturn).

The gravitational pull at its stellar surface is about 300 times stronger than what humans feel on Earth.

EBLM J0555-57Ab orbits a Sun-like primary star, EBLM J0555-57A, in about 8 days and was identified as it passed in front of its larger companion, a method which is usually used to detect exoplanets, not stars.

"EBLM J0555-57Ab is likely as small as stars can possibly become, as it has just enough mass to enable the fusion of hydrogen nuclei into helium," the astronomers said.

"If it were any smaller, the pressure at the center of the star would no longer be sufficient to enable this process to take place."

"Our discovery reveals how small stars can be," said lead author Alexander Boetticher, a student at Cambridge's Cavendish Laboratory and Institute of Astronomy.

"Had this star formed with only a slightly lower mass, the fusion reaction of hydrogen in its core could not be sustained, and the star would instead have transformed into a brown dwarf."

https://www.sci.news/astronomy/saturn-size-star-smallest-yet-05032.html